Moral hazard is a problem that arises when which situation occurs? There is a risk of a "lemon." There is a misunderstanding rising from differences of opinion. There is a hidden characteristic. There is a risk of inappropriate behaviour by one of the parties to a transaction or agreement.
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- When a life-long smoker attempts to purchase a life insurance policy Group of answer choices the life insurance company faces adverse selection. the smoker can expect to pay much higher insurance premiums. a cap on benefits can occur. all of the above are correct. none of the above will occur.Insurance is valuable because a-most individuals are not rational. b-individuals do not know all possible states of the world. c-individuals experience diminishing marginal utility. d-individuals have imperfect information and about the probability of adverse events.___ 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
- Health insurance exchanges in the U.S. eliminate moral hazard. True FalseAs the owner of a successful business, you have just purchased an additional type of property insurance coverage known as business interruption insurance. This insurance protects the profits that a company would have earned had there been no problem. Business interruption insurance covers damages caused by all types of perils, such as fires, tornadoes, hurricanes, lightning, or any other disaster except floods and earthquakes. This insurance pays for "economic" losses incurred when business operations suddenly cease. These include loss of income due to the interruption and additional expenses (e.g., leases; relocation to temporary facilities; overtime to keep up with production demands; recompiling of business, financial, and legal records; and even the salaries of key employees). Your coverage provides insurance reimbursement for 80% of any losses. Your company pays the other 20%. The annual premium is 4% of the income and extra expenses that you insure. (a)If you have purchased…Why is survival time considered to be a good indicator of health status? A. It measures health outcomes as compared to costs B. It places an emphasis on the time spent(duration) in a specific health state C. The measure accounts for mortality rates D. It measures outcomes or health state at a given point in time
- A principal is considering hiring a lawyer to represent him or her in a lawsuit. The principal gets $ 250 000 if the suit is won and $0 otherwise. If the agent works hard (100 hours), there is a 50% chance that the principal will win the suit. If the agent does not work hard (10 hours), there is a 15% chance that the principal will win the suit. Without a lawyer, the principal is sure to lose the suit. The principal can monitor the agent, and both parties are risk neutral. The agent's utility function is m-50e, where m is money in dollars and e is effort in hours. The agent's fee for this case is $100 per hour, and the outside opportunity is worth $500. Write down the game in extensive form and solve it.Q1. Insurance works by spreading risk over - a. the uninsured b. a few people c. several insurance companies d. Many people Q2. Determining the risk associated with a particular group or activity is called - a. discounting b. risk determination c. forecasting d. underwritingWhich of the following best defines full insurance?(a) Number of dollars of accident insurance purchased is less than the potential loss(b) The cost of insurance is fair(c) The price of bad consumption(d) The cost of insurance is less than the probability of the loss occurring(e) Number of dollars of accident insurance purchased is equal to the potential loss
- 20-1 Your product fail about 2% of the time, on average. Some customers purchase the extended warranty you offer in which you will replace the product if it fails. Would you want to price warranty at 2% of the product price? Discuss both moral hazard and adverse selection issues.Adverse selection occurs because of A) spreading of risks. B) diminishing marginal utility. C) of imperfect information. D) moral hazardWhich problem is not an issue in a universal public insurance Moral hazard Adverse selection Overutilization None of the above