Sally got a job as a customer service executive three months ago and worked very hard during the three-month probationary period even though her supervisor could not directly monitor how carefully she provided her services to customers. After Sally passed the probation and obtained a permanent employment contract, her level of work effort dropped significantly.

Tom is an insurance agent selling medical insurance. He would like to sell insurance packages to customers who are less likely to claim compensations after purchasing insurances from him. But he cannot be sure whether applicants who intend to buy his insurance packages have negative medical conditions.

John is a foreign student who plans to study his MBA degree in Singapore in three months. He does not know anyone in Singapore now, and thus engaged a property agent, James, via an online property platform to find a rental apartment near campus for him. John worries whether James will find a suitable apartment that closely matches John’s preferences.

For one (1) of the above scenarios, discuss the following three (3) questions:

1. Holding all other factors constant, apply relevant economic theories and discuss whether the market in the scenario is efficient.
2. If you believe there will be market failures in the scenario, identify the key cause of market inefficiency and the type of market failure. Be specific about your answer. For example, you need to be specific about what kind of externalities (e.g., positive or negative externality; production or consumption externality) or what types of information issues (e.g., adverse selection, moral hazard, or principal-agency problem) are involved or related to the case. Provide a real or hypothetical example of the same kind of market failure by using a different market to support your argument.
3. Recommend a feasible action to the parties who are in the disadvantaged position of the transaction. Explain how your recommendation can help to solve or reduce their problems in the transaction.

Answer rating: 100% (QA)

Lets consider the scenario of Tom the insurance agent selling medical insurance 1 Efficiency of the ... View the full answer