MACROECONOMICS (LL)
21st Edition
ISBN: 9781260186949
Author: McConnell
Publisher: MCG
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Chapter 4.A, Problem 3ADQ
To determine
Moral hazard problems and adverse selection problems.
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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.
1. Indicate which of the following describes a moral hazard problem and which describes adverse selection:
a. A person with a terminal illness buys several life insurance policies via the internet.
b. A person rides carelessly because he has motorcycle insurance.
c. A person who intends to burn down his house takes out a large fire insurance policy.
d. A woman who anticipates having a large family takes a job with a firm that offers exceptional childcare benefits.
7.A person who buys a life insurance policy pays a certain amount per year and receives for his family a much larger payment in the event of his death. Explain why an economist would expect buyers of life insurance to have higher death rates than the average person using the ideas of moral hazard and adverse selection
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Chapter 4 Solutions
MACROECONOMICS (LL)
Ch. 4.A - Prob. 1ADQCh. 4.A - Prob. 2ADQCh. 4.A - Prob. 3ADQCh. 4.A - Prob. 1ARQCh. 4.A - Prob. 2ARQCh. 4.A - Prob. 3ARQCh. 4.A - Prob. 1APCh. 4 - Prob. 1DQCh. 4 - Prob. 2DQCh. 4 - Prob. 3DQ
Ch. 4 - Prob. 4DQCh. 4 - Prob. 5DQCh. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - Prob. 9DQCh. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Use marginal cost/marginal benefit analysis to...Ch. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5PCh. 4 - Prob. 6PCh. 4 - Prob. 7P
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- 3. Briefly explain how asymmetric information in the used car market can result in adverse selection and what can be done to mitigate the problem.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_forwardhow would the adverse selection problem arise in the insurance market? How is it like the lemon used car problem?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 does moral hazard apply to seat belt laws and helmet laws?arrow_forward
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