7. An auto insurance company issues policies only after carefully screening an applicant's driving record. Those who have had many violations and/or accidents are either rejected or are insured at much higher rates. This is to deal with the insurance problem of a. Lack of economies of scale. b. Moral hazard. c. Adverse selection.

7. An auto insurance company issues policies only after carefully screening an applicant's driving record. Those who have had many violations and/or accidents are either rejected or are insured at much higher rates. This is to deal with the insurance problem of a. Lack of economies of scale. b. Moral hazard. c. Adverse selection.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter19: The Basic Tools Of Finance

Section: Chapter Questions

Problem 4CQQ

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Similar questions

In an insurance system, would you expect each person to receive in benefits pretty much what they pay in premiums or is it just that the average benefits paid will equal the average premiums paid?
How can moral hazard lead to more costly insurance premiums than one was expected?
What is an actuarially fair insurance policy?
1) A key difficulty facing insurance companies is that people know more about their health than do insurance companies, and that those people who are seriously ill are the most likely to want to obtain health insurance. What is this phenomenon called? A) moral hazard B) economic irrationality C) asymmetric information D) adverse selection 2) An insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better that the company that he is more likely to make a claim on a policy. What is the term used to describe the situation above? A) moral hazard B) adverse selection C) asymmetric information D) economic irrationality 3) The term that is used to refer to a situation in which one party to an economic transaction has less information than the other party is A) inefficient market hypothesis. B) moral hazard. C) information disparity. D) asymmetric information. 4) Which of the following parties is…
a) Suppose an insurance company decides to insure the earnings obtained by a professional tennis player (in the event of an injury), provided she does not engage in activities like skydiving or skiing. Which asymmetric information problem is the insurance company trying to avoid? b) How do insurance companies protect themselves against losses due to adverse selection and moral hazard? c) How do insurance companies price their products to solve the problem of asymmetric information?