When buyers of insurance have more information about whether they are high-risk or low-riskthan the insurance company does, this creates a problem of asymmetric information for theinsurance company. In economics, what is the term used to describe this phenomenon?Select the correct answer below:cost sharingactuarial fairnessO moral hazardadverse selection

Nhen buyers of insurance have more information about whether they are high-risk or low-risk than the insurance company does, this creates a problem of asymmetric information for the nsurance company. In economics, what is the term used to describe this phenomenon? Select the correct answer below: O cost sharing ) actuarial fairness ) moral hazard adverse selection

Nhen buyers of insurance have more information about whether they are high-risk or low-risk than the insurance company does, this creates a problem of asymmetric information for the nsurance company. In economics, what is the term used to describe this phenomenon? Select the correct answer below: O cost sharing ) actuarial fairness ) moral hazard adverse selection

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter8: Market Failure

Section: Chapter Questions

Problem 10P

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What is the problem of moral hazard?
How might adverse selection make it difficult for an insurance market to operate?
For each of the following kinds of insurance, give anexample of behavior that can be called moral /raumtand anotJ,cr example of behavior that can be calledadverse selection.a. health insuranceb. car insurancec. tile insurance
For each of the following kinds of insurance, give anexample of behavior that reflects moral hazard andanother example of behavior that reflects adverseselection.a. health insuranceb. car insurancec. life insurance
Define the difference between moral hazard and adverse selection using an example. .
Insurance buyers have more information about whether they are high-risk or low-risk than the insurance company does. This creates an asymmetric information problem for the insurance company because buyers who are high-risk tend to want to buy more insurance, without letting the insurance company know about their higher risk. How might this problem impact an insurance company? F T O The company will not be impacted. O The insurance buyers, not the company, will be impacted. As high risk buyers submit claims, they will use up the company's funds for that year, and since the company did not adjust for these high risk claims, once that money is used up, remaining claimants won't receive any coverage. The company will be faced with heavy losses. The insurance company may decide not to sell insurance in this market at all or otherwise choose not to sell insurance to those they can identify as high risk. 106 # C 4 $ JUL 21 tv♫♬ % MacBook Pro Search or type URL + W D P N Ⓒ
A consumer’s demand for a medical service is as follows: Q = 100 – P, where P is theout-of-pocket price she actually faces. Assume this medical service has a market price of $70.This consumer is considering four different insurance options: no insurance, full insurance, a 50% coinsurance plan, and a copayment plan with a $25 co-pay Calculate the deadweight loss under each insurance scheme and show iton each graph. What do you observe?
Question: Suppose that the disability insurance (DI)program was changed so that individuals who want to receive DI must first go 10 months without working to demonstrate that they are truly disabled instead of the current five months. a.How would this change affect the moral hazard costs of DI?Explain your answer. A critic of this change does some research and finds out that the acceptance rate(the share of those applying who are accepted into the program) of the DI program increased as a result of the change. He says that this is evidence that the change in the program has increased the moral hazard costs associated with disability insurance. b.Do you agree or disagree with this assessment? Explain your answer.
Briefly 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?
In the RAND study, two plans had full coverage for spending within the hospital, but one had a $150 deductible for ambulatory care. Th e plan with the ambulatory care deductible had a lower probability of hospital admission (0.115) per year than did the plan with full coverage for everything (0.128), even though both plans covered hospital care fully. (See Table) What does this tell you about the use of hospital and ambulatory. Plan Admissionsper Year Inpatient Cost(1984 Dollars) C = 0 0.128 409 C=0.5 0.092 450 C=0.95 0.099 315 $150 individual deductible 0.115 373
What are some strategies for reducing adverse selection in insurance markets? What sorts of problems do these solutions cause?
Please answer I am so confused, thank you! Health insurance policies attempt to minimize moral hazard by: a. calculating expected utilities b. including cost-sharing mechanisms (deductibles, copayments, etc.) c. charging premiums d. selling insurance to risk seekers