Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Chapter 27, Problem 15E
To determine
To explain:
The reason behind the moral hazard in 2008 as a result of the government's bailout of some banks.
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- 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_forwardIn 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_forwardHow does asymmetric information lead to a market failure? Essayarrow_forward
- 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_forwardCyclists travel faster on their bicycles when wearing helmets. Is this an example of adverse selection or moral hazard? Explain your answer.arrow_forwardIdentify 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.arrow_forward
- What would explain why moral hazard might not occur after the large gains in health insurance coverage?arrow_forwarddefine and explain the importance of moral hazardarrow_forwardAssuming no transaction costs, which legal rule best harnesses private information to deal with externalities? A. A liability rule B. A property rule C. An inalienability rule D. Criminalizationarrow_forward
- Suppose that you put an invisible tracking device on your computer that will instantly lead police to it if your computer is ever stolen. Does your purchase of the tracking device provide a positive or negative externality? What kind of externality do you provide when you purchase a visible computer lock in order to prevent theft?arrow_forwardHistorically, vaccinations have prevented the spread of certain diseases such as chicken pox or meningitis. What type of externality takes place with the consumption of such vaccines. Explain with words and a graph.arrow_forwardOne problem with insurance is that buyers who have more chance of needing a payout (like being in worse health or having worse driving habits) are the ones who are more likely to buy insurance at a price that a private company would offer it. This is referred to as... adverse selection. the tragedy of the commons a negative externality moral hazard.arrow_forward
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