Special interest legislation generally leads to an increase in social welfare

If the consumer has a great deal of time to adjust to an increase in the price of gasoline, which of the following is correct?

A) Quantity demanded will be relatively sensitive to the change in price. B) The percentage change in quantity demanded will be quite small relative to the percentage change in price. C) The percentage change in price will be quite large relative to the percentage change in quantity demanded. D) Demand will tend to be unitary elastic as it is for most goods in the long run.

The state of Massachusetts requires all citizens to purchase medical insurance or face a monetary penalty when filing their taxes. The penalty is significantly less than the average annual insurance premium. Moreover, the state requires insurance companies to issue policies to anyone who applies, regardless of their health at the time of application. Which of the following examples describes the

inherent adverse selection problem? a. Tricia purchases an insurance policy through her employer and visits her doctor for annual check-ups. b. Sue purchases insurance only after learning that she has cancer. c. Mike pays the penalty rather than purchasing insurance because it is cheaper for him than paying insurance premiums and he is generally in good health. d. Both b and c are correct.