When unions or legislation makes it necessary for a firm to pay ...

[mcmcdaniel]

When unions or legislation makes it necessary for a firm to pay higher wages,
 
  A) efficiency declines.
  B) income is transferred from wealthy people to poor people.
  C) the marginal value of retained employees falls.
  D) the marginal value of retained employees rises.
  E) total purchasing power increases.

Question 2

How can a health insurance mandate help in reducing the problem of adverse selection in the health insurance market?
 
  What will be an ideal response?

[lorealeza]

Answer to Question 1

D

Answer to Question 2

The problem of adverse selection occurs in the health insurance market when low-risk individuals stay out of the market due to high premiums. A large number of high-risk individuals in the market further increases the premium causing only high-risk individuals to remain in the market. A health insurance mandate, which requires everybody to purchase a basic insurance plan, implies that low-risk individuals cannot opt out of the market and thus prevents the chain of events triggered by adverse selection.

[mcmcdaniel]

Correct answers!

[lorealeza]

Great! Please up vote