EBK ESSENTIALS OF ECONOMICS
7th Edition
ISBN: 8220102452107
Author: Mankiw
Publisher: CENGAGE L
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Question
Chapter 19, Problem 5PA
Subpart (a):
To determine
Example of moral hazards and adverse selections
Subpart (b):
To determine
Examples of moral hazards and adverse selection.
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Students have asked these similar questions
Briefly explain what it means for information to be asymmetric.
a. What is Moral Hazard?
b. Identify and briefly explain three methods that insurance companies could use to off-set the moral hazard associated with their industry.
c. What is Adverse Selection?
Which of the following is an example of moral hazard?
Group of answer choices
A. Reckless drivers are the ones most likely to buy automobile insurance.
b. Retail stores located in high-crime areas tend to buy theft insurance more often than stores located in low-crime areas.
C. Drivers who have many accidents prefer to buy cars with air bags.
D. Employees recently covered by the company health plan start going to the doctor every time they get a cold.
E. Company divisions try to improve profitability at each other's expense.
What are some strategies for reducing adverse selection in insurance markets? What sorts of problems do these solutions cause?
Chapter 19 Solutions
EBK ESSENTIALS OF ECONOMICS
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Similar questions
- How might adverse selection make it difficult for an insurance market to operate?arrow_forwardIf 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 seletion? How will an insurance company deal with these problems?arrow_forwardFor each of the following kinds of insurance, give anexample of behavior that reflects moral hazard andanother example of behavior that reflects adverseselection.a. health insuranceb. car insurancec. life insurancearrow_forward
- For each of the following kinds of insurance, give anexample of behavior that can be called moral /raumtand anotJ,cr example of behavior that can be calledadverse selection.a. health insuranceb. car insurancec. tile insurancearrow_forwardBonnie regularly lets her boyfriend drive her car whenever they go on a date. Yesterday, he caused an accident driving Bonnie’s car. Will Bonnie’s insurance company cover the accident? a. No, because insurance is always waived when a car is used by a unlisted driver. b. Yes, because PAP coverage follows the car. c. No, because her insurance company will claim that the boyfriend should have been listed as a regular driver of the car. D.Yes, because Bonnie was present when the accident happened.arrow_forwarda. If a pay-as-you-drive insurance program is being implemented to cope with automobile-related externalities associated with driving, what factors should be considered in setting the premium? b. Would you expect a private insurance company to take all these factors into account? Why or why not?arrow_forward
- People drive faster when they have auto insurance. This is an example of: a. Adverse selection. b. Asymmetric information. c. Moral hazard.arrow_forward2. Cyclists travel faster on their bicycles when wearing helmets. Is this an example of adverse selection or moral hazard? Explain your answer.arrow_forwardName two solutions to adverse selection in insurance and explain how they work.arrow_forward
- George 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_forward1. When an auto insurance company is screening, it is A. attempting to keep its private information private. B. marketing its policies to customers. C. ignoring the possibility of moral hazard in order to minimize adverse selection. D. trying to determine if a driver is an aggressive driver or a safe driver. E. making its private information public. 2. In the market for health care services, Health Maintenance Organizations A. help overcome adverse selection by enrolling only healthy clients. B. exist to insure people with preexisting medical conditions. C. overprovide medical care and thereby result in increased costs. D. help overcome moral hazard by monitoring the quality of the service. E. None of the above answers are correct 3. Moral hazard in the market for healthcare services leads Question content area bottom Part 1 A. to providers over treating patients.. B. to healthy people not buying health insurance. C. patients to adopt healthy life styles. D. to all…arrow_forwardSuppose an individual saves as precaution against adverse events, like unemployment. This is an example of a-adverse selection b-self-insurance c-adverse saving d-moral hazardarrow_forward
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