Suppose that a provider of health insurance is concerned that a ...

[bcretired]

Suppose that a provider of health insurance is concerned that a policy holder will eat unhealthy foods during the lifetime of their insurance contract. The insurer faces the problem of ________.
 
  A) Antediluvian intransigence
  B) opportunity costs
  C) moral hazard
  D) adverse selection

Question 2

Use the concept of intertemporal substitution to explain how, in real business cycle models, a change in potential output causes an immediate change in actual output.
 
  What will be an ideal response?

[trampas]

Answer to Question 1

C

Answer to Question 2

A productivity shock shifts the production function. At the prevailing levels of input use, output rises or falls, accordingly. Output changes further, as input suppliers adjust to changes in the marginal products of labor and capital. Specifically, an increase (decrease) in the marginal product of an input causes an increase (decrease) in factor payment. In response, the quantities of labor and capital supplied increase (decrease).

[bcretired]

TYSM

[rleezy04]

Excellent