Principles Of Microeconomics (book With Myeconlab With Pearson Etext Access Card)
12th Edition
ISBN: 9780134435039
Author: CASE, Karl E.; Fair, Ray C.; Oster, Sharon E.
Publisher: PEARSON
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Chapter 17, Problem 2.7P
To determine
How the group medical coverage helps to reduce the problem of adverse selection.
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What are some strategies for reducing adverse selection in insurance markets? What sorts of problems do these solutions cause?
If people get higher pay from their insurance than their premiums, will this increase or decrease the death rate of average person? Is this example of moral hazard or adverse selection? How will the insurance company deal with this problem ?
If people get higher pay from insurance than their premiums, will this increase or decrease the death rate of average persons? Is this an example of moral hazard or adverse selection? How will an insurance company deal with these problems?
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Principles Of Microeconomics (book With Myeconlab With Pearson Etext Access Card)
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- How might adverse selection make it difficult for an insurance market to operate?arrow_forwardName two solutions to adverse selection in insurance and explain how they work.arrow_forwardIn 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 abovearrow_forward
- Provide an intuitive discussion of how adverse selection affects the used-car market. Describe one potential signal that can help alleviate the problem of adverse selection in this market and discuss how this signal satisfies the two necessary assumptions for it to be used as a credible signal.arrow_forwardWhich of the following statements is FALSE regarding the concept of "adverse selection"? Multiple Choice Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss. Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks. The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers. To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.arrow_forwardDefine the difference between moral hazard and adverse selection using an example. .arrow_forward
- What would explain why moral hazard might not occur after the large gains in health insurance coverage?arrow_forwardThe text points out that asymmetric information can have deleterious effects on market outcomes. a. Explain how asymmetric information about a hidden action or a hidden characteristic can lead to moral hazard or adverse selection. b. Discuss a few tactics that managers can use to overcome these problems.arrow_forwardThe problem of adverse selection in insurance markets means that it is generally a bad deal for companies to offer insurance at the same price for all potential customers. Why then do we observe some insurance companies (such as those selling “trip insurance” that refunds money to people who purchase trips that they are unable to take) do exactly this?arrow_forward
- Distinguish between adverse selection and moral hazard as they relate to the insurance industry.arrow_forwardDistinguish the difference between adverse selection and moral hazard.arrow_forwardThis question is broken into 4 parts. Please answer all parts. A. Explain the relation between moral hazard and insurance premiums. B. Now think about how people with different health risks assess insurance products with a given deductible, and explain how supporters of minimizing adverse selection should think about a proposal (say from Bernie Sanders) that all insurance policies should have zero deductibles and coinsurance. C. Does community rating make the policy tradeoffs inherent in b harder or easier to manage? D. Would a purchase mandate make the policy tradeoffs inherent in b + c harder or easier to manage?arrow_forward
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