Pearson eText Microeconomics -- Access Card
2nd Edition
ISBN: 9780136849513
Author: Acemoglu, Daron, Laibson, David, List, John
Publisher: PEARSON
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Chapter 16, Problem 7P
To determine
Explanation for a higher rate and longer sale period of houses sold by realtors through moral hazard.
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give an example of an existing economic interaction that exhibits moral hazard. describe the setting and talk about efficiency considerations.
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Pearson eText Microeconomics -- Access Card
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- define and explain the importance of moral hazardarrow_forwardThe used car market can become a “lemon” market, where sellers of poor quality used cars will stay in the market, while sellers of good quality used cars will exit the market. Why is this happening? Is this adverse selection or moral hazard? Give an argumentarrow_forwardWhat is moral hazard?arrow_forward
- 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).arrow_forwardGeorge Akerloff focused the market for used cars and discussed an issue later generally called the "lemons problem." A "lemon" is a low quality used car, with the seller but not the potential buyer aware of this. Since sellers have more information about the quality of the car: a. adverse selection causes an inefficiently large number of transactions to occur. b. moral hazard causes an inefficiently large number of transactions to occur. c. moral hazard causes an inefficiently small number of transactions to occur. d. adverse selection causes an inefficiently small number of transactions to occur.arrow_forwardCyclists travel faster on their bicycles when wearing helmets. Is this an example of adverse selection or moral hazard?arrow_forward
- Which of the following would not be an example of a problem associated with moral hazard? Group of answer choices party taking an unobservable action to gain pense of another party. A traveler leaving his valuables in sight in a hotel room because she has travel insurance. A salesman ordering an expensive meal on a business trip because his company pays his expenses. All of the above are examples of moral hazard.arrow_forwardA Grab driver who does not own the car is very harsh on his driving as he knows that the car is not his. Is this an example of a moral hazard problem? How does moral hazard issue arise?arrow_forwardIn Hayward, there are 100 people who want to sell their used cars. Everybody knows that 50 of these cars are "lemons" and 50 of these cars are "peaches." The problem is that nobody except the original owners know which are which. Owners of lemons will be happy to get rid of their cars for any price greater than $200. Owners of peaches will be willing to sell them for any price greater than $1,500 but will keep them if they can't get $1,500. There are a large number of buyers who would be willing to pay $2,500 for a peach but would pay only $300 for a lemon. When these buyers are not sure of the quality of the car they buy, they are willing to pay the expected value of the car, given the knowledge they have. If all 100 used cars in Hayward were for sale, how much would buyers be willing to pay for a used car? Type the number without the thousands separator or $ sign.arrow_forward
- In Hayward, there are 100 people who want to sell their used cars. The problem is that nobody except the original owners know which are which. Owners of lemons will be happy to get rid of their cars for any price greater than $200. Owners of peaches will be willing to sell them for any price greater than $1,500 but will keep them if they can't get $1,500. There are a large number of buyers who would be willing to pay $2,500 for a peach but would pay only $300 for a lemon. When these buyers are not sure of the quality of the car they buy, they are willing to pay the expected value of the car, given the knowledge they have. What is the minimum probability for a used car to be a peach such that peaches stay in the market? Ő O 0.33 0.67 0.55 0.5arrow_forwardHow can deductibles, copayments, and coinsurance reduce moral hazard?arrow_forwardIf 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 problemarrow_forward
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