Microeconomics
Microeconomics
5th Edition
ISBN: 9781319098780
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
Question
Book Icon
Chapter 20, Problem 13P
To determine

Which of the following situations are an example of adverse selection and which are of moral hazard.

Concept Introduction:

Adverse selection refers to a situation where one party involved in trade has all the information about the product being traded while, the others do not. In other words, the problem of adverse selection results from the asymmetric information in the market.

Moral Hazard refers to a situation where one party provides misleading information to the other party and changes his behavior about protecting the good after being insured from the risk. For example, after taking a life insurance policy the insured party becomes careless about his life and takes more risks. This is a situation of moral hazard.

Blurred answer
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education