Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Question
Chapter 19, Problem 6MC
To determine
Adverse selection.
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Adverse selection is good ? like the The Affordable Care Act (Obamacare) deals with the problem of adverse selection by using the power of the government to fine individuals who do not sign up for health insurance. do you think it brings benefits or not ?
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.
23) Which of the following is an example of adverse selection?
A) Individuals who have a history of not being careful with their possessions are more likely to insure them against accidental damage.
B) Individuals with makes of cars that are widely known to be the target of car theft are more likely to insure their car.
C) Individuals with possessions that are costly to replace are more likely to insure them against accidental damage.
D) all of the above
Chapter 19 Solutions
Managerial Economics: A Problem Solving Approach
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- Place an “M” beside the items in the following list that describe a moral hazard problem and an “A” beside those that describe an adverse selection problem a. A person with a terminal illness buys several life insurance policies through the mail. b. A person drives carelessly because she has automobile insurance. c. A person who intends to torch his warehouse takes out a large fire insurance policy. d. A professional athlete who has a guaranteed contract fails to stay in shape during the off season. e. A woman who anticipates having a large family takes a job with a firm that offers exceptional child care benefits.arrow_forwardThe government can help solve the problem of adverse selection in each of these ways EXCEPT: a. reducing the need for insurance. b. requiring that everyone buy insurance. c. providing incentives for buyers to reveal private information. d. providing insurance.arrow_forwardHow does moral hazard apply to seat belt laws and helmet laws?arrow_forward
- 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..arrow_forwardPeople drive faster when they have auto insurance. This is an example of: a. Adverse selection. b. Asymmetric information. c. Moral hazard.arrow_forwardCyclists travel faster on their bicycles when wearing helmets. Is this an example of adverse selection or moral hazard?arrow_forward
- 1. 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_forwardhow would the adverse selection problem arise in the insurance market? How is it like the lemon used car problem?arrow_forwardThe principal of a school hires Daniel to teach eighth grade students. One goal the principal has is to prepare the students to do well on standardized tests, as he will be judged based on the results of those tests. Daniel prefers to teach in a more creative way, so the students learn a lot, but perform poorly on their standardized tests. This is an example of what problem? a. Adverse hazard b. Moral hazard c. Adverse selection d. Free-ridingarrow_forward
- 20. When a moral hazard problem exists for automobile driving, the marginal cost of driving (A) is lowered, and the amount of driving done is raised above the efficient level. (B) is lowered, and the amount of driving done is lowered below the efficient level. (C) is raised, and the amount of driving done is raised above the efficient level . (D)is raised, and the amount of driving done is lowered below the efficient level. (E) is raised above the efficient level, but market forces keep the total amount of driving is kept at the efficient level .arrow_forwardCyclists travel faster on their bicycles when wearing helmets. Is this an example of adverse selection or moral hazard? Explain your answer.arrow_forwardThe difference between moral hazard and adverse selection is a. moral hazard has to do with unobservable characteristics of individuals b. moral hazard has to do with unobservable actions of individuals c. adverse selection is when individuals change their behaviors because of a contract d. adverse selection is when you choose the wrong answer on a testarrow_forward
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