MANAGERIAL ECONOMICS
5th Edition
ISBN: 9781337106658
Author: FROEB
Publisher: CENGAGE L
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Question
Chapter 20, Problem 1MC
To determine
Moral hazard problem.
Expert Solution & Answer
Explanation of Solution
Moral hazard refers to changes in the behavior of people after they have entered into a transaction that makes the other party in the transaction worse off. The person frequently visits the doctor since the person has insurance. Thus, option ‘d’ is correct.
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Students have asked these similar questions
How does moral hazard apply to seat belt laws and helmet laws?
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..
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.
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- An insurance company estimates that drivers have a 5% chance of getting into an accident that will cost the driver $10,000. There are two types of drivers: the ones with $50,000 in the bank and the ones with only $5,000. In case of an accident those with $5,000 will declare bankruptcy and creditors can only recover $5,000. What is the fair pair of insurance and will those with $5,000 in the bank buy it? Why?arrow_forwardWhich of the following is the correct formula regarding the costs and benefits of committing a crime (e.g. point-shaving)? (a) B > P(c)/C (b) B > P(c)*C (c) P(c)/B > C (d) P(c)*B > Carrow_forwardLoan applications require a lot of information from applicants to avoid Group of answer choices A. moral hazard. B.adverse selection. C.free riding. D.incentive conflict. E. all of the above.arrow_forward
- The idea that ethical judgments are universal was advanced by: a. Kant & Hare b. Dostoyevsky & Kant c. Bentham & Dostoyevsky d. Dostoyevsky & Harearrow_forwardThe Subject: Microeconomic Chapter Seven What are the asymmetric information problems in the market for health insurance?arrow_forwardIs there any way to split the cost to ensure that everyone benefits? What practical problems does the solution raise?arrow_forward
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