Bundle: Principles of Microeconomics, Loose-Leaf Version, 7th + Aplia, 1 term Printed Access Card
7th Edition
ISBN: 9781305135444
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 22, Problem 1PA
Subpart (a):
To determine
Identifying principal and agent in the problem of moral hazard.
Subpart (b):
To determine
Identifying principal and agent in the problem of moral hazard.
Subpart (c):
To determine
Identifying principal and agent in the problem of moral hazard.
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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.
Private 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.
Which of the following is an example of moral hazard in the medical industry?
Choose the best answer:
a. A surgeon wants the opportunity to perform for minor ailments
b. Insurance companies and individuals do not openly share information
c. Prices are not transparent or consistent among customers
d. Those with significant health insurance coverage tend to overuse health services
Chapter 22 Solutions
Bundle: Principles of Microeconomics, Loose-Leaf Version, 7th + Aplia, 1 term Printed Access Card
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- 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 seletion? How will an insurance company deal with these problems?arrow_forwardgive an example of an existing economic interaction that exhibits moral hazard. describe the setting and talk about efficiency considerations.arrow_forwardBriefly 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?arrow_forward
- What is moral hazard?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_forwardThe 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 argumentarrow_forward
- Suppose 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_forwardDon't use ai to answer I will report your answer Solve it Asap with explanation and calculationarrow_forwardAdverse selection occurs because of A) spreading of risks. B) diminishing marginal utility. C) of imperfect information. D) moral hazardarrow_forward
- Which of the following is an example of moral hazard? (hint: please consider all the three conditions under which moral hazard due to insurance would occur) A woman who uses her fireplace only after she buys homeowner's insurance An individual goes to an all-you-can-eat buffet and eat more than optimal, because a price distortion induces overconsumption. A previously uninsured man who enrolls in his workplace health insurance plan after being diagnosed with multiple sclerosis (assume no behavior change after having insurance).arrow_forwardHow does the problem of moral hazard affect the safety of sports such as football and boxing when safety regulations started requiring that players wear more padding?arrow_forwardTyped plz and asap thanksarrow_forward
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