Which of the following is an example of moral hazard? (hint: please consider all the three conditions under which moral hazard due to insurance would occur) A woman who uses her fireplace only after she buys homeowner's insurance An individual goes to an all-you-can-eat buffet and eat more than optimal, because a price distortion induces overconsumption. A previously uninsured man who enrolls in his workplace health insurance plan after being diagnosed with multiple sclerosis (assume no behavior change after having insurance).

Which of the following is an example of moral hazard? (hint: please consider all the three conditions under which moral hazard due to insurance would occur) A woman who uses her fireplace only after she buys homeowner's insurance An individual goes to an all-you-can-eat buffet and eat more than optimal, because a price distortion induces overconsumption. A previously uninsured man who enrolls in his workplace health insurance plan after being diagnosed with multiple sclerosis (assume no behavior change after having insurance).

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

Chapter20: The Problem Of Adverse Selection Moral Hazard

Section: Chapter Questions

Problem 1MC

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In the health insurance market, moral hazard occurs when A.) chronically ill people refuse appropriate medical treatment. B.) chronically ill people buy insurance. C.) patients sue their doctor. D.) chronically ill people cannot buy insurance. E.) providers overtreat patients..
Indicate whether the statement is true, false, or unclear, and justify your answer.An uninsured patient who incessantly visits his doctor because he always thinks he is getting sick is an example of moral hazard.
Identify each of the following as an adverse selection or a moral hazard problema. A person with car insurance fails to lock his car doors when he shops at a mall.b. A person with a family history of cancer purchases the most complete health coverage available.c. A person with health insurance takes more risks on the ski slopes of Aspen than he would without health insurance.d. A college professor receives tenure (assurance of permanent employment) from her employer.e. A patient pays his surgeon before she performs the surgery.
Which of the following is an example of moral hazard in the medical industry? Choose the best answer: a. A surgeon wants the opportunity to perform for minor ailments b. Insurance companies and individuals do not openly share information c. Prices are not transparent or consistent among customers d. Those with significant health insurance coverage tend to overuse health services
Because Elaine has a family history of significantmedical problems, she buys health insurance,whereas her friend Jerry, who has a healthier family,goes without. This is an example ofa. moral hazard.b. adverse selection.c. signaling.d. screening
Indicate whether the statement is true, false, or unclear, and justify your answer.A previously uninsured man who enrolls in his workplace health insurance plan after being diagnosed with multiple sclerosis is an example of moral hazard.
Suppose an insurance company wants to charge a very healthy individual a premium of $1,200 a year for health coverage. It also wants to charge a less healthy individual a premium of $3,600 a year for health coverage. It is seeking to ascertain from any given customer information regarding his/her health by asking for several pieces of health-related information, such as doctor assessments of the person’s health, history of health-related problems, etc. The opportunity cost of a very healthy person securing a health report is $250 and the opportunity cost of a less healthy person securing a health report is $650. Of the choices below, how many reports should the company request to best ensure its paying the right premium to the right person? Reconsider the previous health insurance question. Of the choices below, which one is closest to the spread between the minimum possible number of reports and the maximum possible reports to achieve the company’s desired outcome? Reconsider again…
Suppose a demand curve has the form x = 100 - 10p. If the market price is $5, how would a $200 deductible impact quantity demanded? A. The consumer will behave in the same manner as he would with no insurance and consume 50 services. B.The consumer will behave in the same manner as he would with no insurance and consume 0 services. C.The consumer will behave as if the market price is $0 and consume 50 services. D.The consumer will behave as if the market price is $0 and consume 100 services.
If people get higher pay for insurance than their premium will this increase or decrease the death rate of average persons? Is this an example of a moral hazard or harvest selection. How will an insurance company deal with this problem
The presence of what two forces in a health insurance market may cause the market to completely unravel?
define and explain the importance of moral hazard
Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for poor quality used cars is $10,000. Assume a potential used car buyer has imperfect information as to the condition of any given used car. Assume this potential buyer believes the probability a given used car is good quality is .60 and the probability a given used car is low quality is .40. Assume the seller has perfect information on all cars in inventory. How does the informational imbalance result in market failure? a. Only good quality cars are sold, hence the market under-provides used cars. b. Both poor and good quality cars are sold, hence the market over-provides used cars. c. Only poor quality cars are sold, hence the market under-provides used cars. d. Both poor and good quality cars are sold, hence the market efficiently provides used cars.