EBK EXPLORING MACROECONOMICS
7th Edition
ISBN: 9780100546400
Author: Sexton
Publisher: YUZU
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Question
Chapter 8, Problem 11P
To determine
(a)
To state:
The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.
To determine
(b)
To state:
The reason for if a car insurance excluding the insurance of car for commercial use can reduce moral hazards.
To determine
(c)
To state:
The reason behind insurance of a vehicle based on the driving distance helps reduce moral hazards.
To determine
(d)
To state:
The reason behind a vehicle using GPS monitor recording the location and speed can help reduce the hazard problem.
Expert Solution & Answer
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Students have asked these similar questions
a. If a pay-as-you-drive insurance program is being implemented to cope with automobile-related externalities associated with driving, what factors should be considered in setting the premium?
b. Would you expect a private insurance company to take all these factors into account? Why or why not?
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.
Which of the following is an example of moral hazard?
Group of answer choices
A. Reckless drivers are the ones most likely to buy automobile insurance.
b. Retail stores located in high-crime areas tend to buy theft insurance more often than stores located in low-crime areas.
C. Drivers who have many accidents prefer to buy cars with air bags.
D. Employees recently covered by the company health plan start going to the doctor every time they get a cold.
E. Company divisions try to improve profitability at each other's expense.
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- 2. Cyclists travel faster on their bicycles when wearing helmets. Is this an example of adverse selection or moral hazard? Explain your answer.arrow_forwardMany people in the property and liability insurance industry complain about the “automobile problem.” The “automobile problem” consists of a series of interrelated problems. What factors have combined to produce a problem in the automobile insurance area?arrow_forwardGeorge 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.arrow_forward
- 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.arrow_forwardEmpirical evidence suggests that state laws mandating health insurance coverage for alcoholism treatment leads to moral hazard on the part of the insured population. Given this information, what are you most likely to observe in a state that has passed such a law? A. Less use of alcohol treatment facilities B. Lower rates of drunk driving C. Higher rates of alcoholism D. Lower sales of alcoholarrow_forward1. 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_forward
- "Using the example of driving a car, explain moral hazard"arrow_forward7.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 Only typing answer Please explain step by steparrow_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
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