Microeconomics (9th Edition) (Pearson Series in Economics)
9th Edition
ISBN: 9780134184241
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Question
Chapter 17, Problem 3E
To determine
The banning of lower grades and the moral hazard.
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The 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 argument
Explain the relationship between moral hazard and insurance premiums
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.
Chapter 17 Solutions
Microeconomics (9th Edition) (Pearson Series in Economics)
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- which of the strategies is effective in reducing moral hazard? gatekeeping cost sharing prospective payment all of the abovearrow_forwardDefine the difference between moral hazard and adverse selection using an example. .arrow_forwardPrivate markets may underallocate resources to a good or service that is affected by the moral hazard problem because the sellers of the product will not be able to Multiple Choice A. tell which specific buyers may be affected by moral hazard. B. know the degree to which moral hazard may lead any specific buyer to engage in costly behavior. C. both A and B. D. neither A nor B.arrow_forward
- Many police officer positions require the applicant to have a college degree even though the tasks of a police officer rarely call upon college course material. Speculate on why police departments do not increase their applicant pool by dropping this requirement and how asymmetric information, moral hazard, and adverse selection are involved?arrow_forwardTrue or False. An all-you-can-eat buffet is a classic example of moral hazard, because a price distortion induces overconsumption. Be sure to justify your answer.arrow_forwardDifferentiate between adverse selection and moral hazard problems with one examplesarrow_forward
- 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?arrow_forwardwhy moral hazard might not occur after the large gains in health insurance coveragearrow_forward
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