As it applies to insurance, the adverse selection problem is the tendency for: those most likely to collect on insurance to buy it. those who buy insurance to take less precaution in avoiding the insured risk. sellers to price discriminate. sellers to restrict output and charge high prices.

As it applies to insurance, the adverse selection problem is the tendency for: those most likely to collect on insurance to buy it. those who buy insurance to take less precaution in avoiding the insured risk. sellers to price discriminate. sellers to restrict output and charge high prices.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter19: The Problem Of Adverse Selection

Section: Chapter Questions

Problem 8MC

See similar textbooks

Related questions

Q: It was taught that liability insurance would undermine the tort system, which has as its central…

A: Liability insurance- It is a type of insurance that protects against claims arising from personal…

Q: Which of the following is an example of adverse selection? Group of answer choices A safe driver…

A: Answer Adverse selection means presence incomplete information about the buyers and sellers about…

Q: which option is resulting in a moral risk (dishonesty)? Policyholder’s history of prior losses in…

A: Moral hazard is a situation in which a person involves in some risky event by knowing that his/her…

Q: A basic life insurance illustration of non-guaranteed elements must be accompanied by a statement…

A: Insurance refers to the policy or scheme that banks or firms give its customers in exchange for some…

Q: PEOs enable small businesses to attain insurance and other benefits at lower costs because the PEO…

A: A professional employer organization (PEO) is a company that leases personnel to an employer,…

Q: Which problem is not an issue in a universal public insurance Moral hazard Adverse…

A: Answer is none of the above. Reason:moral hazard is issue as there is assymetric information…

Q: A way to help overcome adverse selection is to ... require a deductible be paid before benefits…

A: Adverse selection refers to the situation when one of the parties has relatively more information…

Q: Which of the following would best describe the insurance in risk, to an insurer resulting from a…

A: Insurance in risk refers to the insurance of risk against occurrence of something bad, harmful or…

Q: employee who owns an individual Disability Income policy is injured in an automobile accident and…

A: The term disability income (DI) insurance alludes to an insurance policy that turns out revenue to…

Q: Which of the following are possible reasons why empirical studies do not always find evidence for…

A: ANSWER: OPTION(D) Risk aversion overcomes adverse selection on health…

Q: When a life-long smoker attempts to purchase a life insurance policy Group of answer choices the…

A: Answer: When a life-long smoker attempts to purchase a life insurance policy (and he/she does not…

Q: Which of the following statements is correct? a. Adverse selection arises when one party to a…

A: In the free market, resources are optimally allocated by the forces of the demand and supply but due…

Q: Draw a graph with utility on the Y axis and income on the X axis for a risk averse person. Label the…

A: Risk-averse people will not be willing to take risks.

Q: The difference between the actuarily fair price for insurance and the price a risk-averse individual…

A: To Find: Difference between the actual fair price for insurance and, the price a risk- averse…

Q: Q1. Insurance works by spreading risk over - a. the uninsured b. a few people c. several…

A: Note:- Since we can only answer up to three subparts, we'll answer first three. Please repost the…

Q: The health care system in the U.S. offers greater physician and insurer choice than the Bismarck…

A: answer is in 2nd step:

Q: Which of the following is considered insurance producer misrepresentation? A. Switching from one…

A: Insurance company is the financial institutions which help to mitigate the risk of person by…

Q: In order to remain competitive, insurance companies must successfully address: A. Adverse…

A: Moral Hazard refers to undesirable change in behaviour of person as he knows that their risk is…

Q: Which of the following would be a covered loss under the medical payment coverage of a commercial…

A: Commercial general liability is a kind of insurance policy and it provides insurance coverage…

Q: Risk selection" refers to -- a. the incentive of insurance companies to avoid enrolling people…

A: In financial terms, risk is defined as the chance that the actual gains from an outcome or…

Q: In order to remain competitive, insurance companies must successfully address: A. Adverse…

A: Adverse selection refers to th situation where one party know more information than the other party…

Q: Distinguish between adverse selection and moral hazard as they relate to the insurance industry

A: Economics is a branch of social science that describes and analyzes the behaviors and decisions…

Q: insurance is pure liability coverage over and above the coverage provided by other types of…

A: We have to find given question answer.

Q: why is adverse selection important in healthcare insurance markets.

A: When talking about healthcare insurance market, it can be said that it is the market for the people…

Q: The discount for an automobile anti-theft mechanism installed in a motor vehicle insured for…

A: An insurance market is one where buyers and suppliers have n incentive to make negotiations based on…

Q: Which of the following assertions about a Whole Life insurance policy is TRUE? A. Premium payments…

A: Whole life insurance is a long-term investment that appreciates in value. As long as the premiums…

Q: Which of he following sections of an insurance contract limits coverage? A.Waiver of Premium…

A: An insurance contract is an agreement between two parties, one of whom is known as the insurer and…

Q: In some countries, such as Canada and UK, direct-to-consumer (DTC) advertising for pharmaceutical…

A: Direct-to-consumer(DTC): This term is used when the products are sell to the consumers directly that…

Q: Economics The presence of co-insurance has the following effect on price elasticity of demand:…

A: When talking about co-insurance, it can be said that it is the amount of money paid by an insured…

Q: Which of the following is NOT an example of on-demand insurance? Which of the following is NOT an…

A: The insurance that allows consumers for purchasing coverage anywhere when the asset requiring…

Q: Individuals will prefer to fully insure against a potential adverse event if A. individuals are…

A: In a market, people have individual differences and different behaviour to make an exchange based on…

Q: Insurance mandates do little to combat the problem of adverse selection. True False

A: Insurance is a way to manage your risk. When you buy insurance, you purchase protection against…

Q: Whcih of the following could help overcome the problem of adverse selection in the used car market?…

A: The answer is - The government could enact disclosure laws requiring that potential buyers be told…

Q: Adverse selection occurs in insurance markets because: Multiple Choice the seller has more…

A: Adverse selection refers to the situation in which one party fails to make a optimal choice because…

Q: It was felt that liability insurance would undermine the tort system, which has as its central…

A: Liability insurance:- The word "liability insurance" denotes to such an insurance policy which…

Q: Short questions a. Describe the first and second Welfare Theorem b. Describe the difference…

A: Welfare economics is a discipline of economics that employs microeconomic approaches to assess…

Q: Most hospitals and nursing homes, and some insurance companies, do not aim to maximize profit but…

A: To determine the aim of insurance companies and hospitals.

Q: This question is broken into 4 parts. Please answer all parts. A. Explain the relation between moral…

A: Ans.A. Moral Hazard refers to a situation when any person has an incentive to increase their risk…

Q: The purpose of the coordination of benefit clause found in group policies is to: A: promote over…

A: The Coordination of Benefits (COB) clause in group policies is included to eliminate duplication of…

Q: Insurance is basically the transferring of risk from one party to another. A. True B. False The cost…

A: Hello. Since your question has multiple parts, we will solve first question for you. If you want…

Q: Which of the following statements is FALSE regarding the concept of "adverse selection"? Multiple…

A: Adverse Selection:- Whenever market participants have asymmetrical (uneven) knowledge, adverse…

Q: Name two solutions to adverse selection in insurance and explain how they work.

A: Adverse selection occurs when there is asymmetric information between the seller and the buyer.

Q: Which best describes workers’ compensation insurance? It is federally mandated but administered…

A: Workers' compensation, or "workers comp," is a government-mandated programme that pays benefits to…

Question

As it applies to insurance, the adverse selection problem is the tendency for:

those most likely to collect on insurance to buy it.

those who buy insurance to take less precaution in avoiding the insured risk.

sellers to price discriminate.

sellers to restrict output and charge high prices.

Definition Definition Pricing strategy based on the principle that the seller will charge the buyer a price based on the buyer’s ability and willingness to pay for the product rather than applying uniform pricing for all.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1- Introduction

VIEW

Step 2- Explanation

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

As it applies to insurance, the moral hazard problem is the tendency for: those most likely to collect on insurance to buy it. those who buy insurance to take less precaution in avoiding the insured risk. sellers to price discriminate. sellers to restrict output and charge high prices.
Which of the following is considered insurance producer misrepresentation?A. Switching from one insurance coverage to a better one.B. Declaring that dividends will be paid. C. Representing many insurance companies simultaneously D. Requiring an insurance applicant to pay their premium to the insurance company.
The difference between the actuarily fair price for insurance and the price a risk-averse individual is willing to pay to fully insure is called a-insurance benefit b-risk aversion c-the risk premium d-risk profit
In order to remain competitive, insurance companies must successfully address: A. Adverse Selection B. Moral Hazard C. Accurate underwriting (pricing of risk) D. All of the above E. None of the above
Adverse selection in insurance business means that those__________ likely to get _________insurance benefits want to purchase insurance the most. Group of answer choices most; large least; small least; large most; small not; any
Distinguish between adverse selection and moral hazard as they relate to the insurance industry.
Life insurance companies require applicants to submit to a physical examination as proof of insurability prior to issuing standard life insurance policies. In contrast, credit card companies offer their customers a type of insurance called “credit life insurance” that pays off the credit card balance if the cardholder dies. Would you expect insurance premiums to be higher (per dollar of death benefits) on standard life or credit life policies? Explain.
___ occurs when insurance companies structure plans that provide an incentive for healthier consumers to enroll while discouraging enrollment of higher-risk individuals a. Guaranteed renewability b. Cherry-picking c. Moral Hazard d. Asymmetric Information e. Adverse Selection
Which of the following statements is correct? a. Adverse selection arises when one party to a transaction hides information from the other. b. Moral hazard arises when one party to a transaction hides actions/behavior to the other. c. Moral hazard leads to insured customers exercising less care than they would if they were not insured. d. All of the above.
It was felt that liability insurance would undermine the tort system, which has as its central theorem the concept that the individual responsible for injuring another should be made to pay for that injury. Do you think the existence of liability insurance causes one to be less careful than he or she might otherwise be?
Name two solutions to adverse selection in insurance and explain how they work.
In the mid-1990s, the state of New Jersey revised its rules for the individual insurance market and began requiring that insurers charge the same premiums for the same coverage to all applicants. Assuming that insurers had previously used medical underwriting, which of the following is a predictable consequence of adverse selection? 1) Insurance becomes less attractive to the healthiest individuals, so fewer of them buy it 2) Insurers’ average costs of providing coverage increase because of a changing risk pool 3) The average age of those buying in the individual market goes up 4) All of the above