13. Adverse selection refers to a. the phenomenon that occurs when one party in an exchange takes advantage of knowing more than another party b. the tendency for individuals to alter their behaviour once they are insured against loss C. the tendency for individuals to engage in insurance fraud d. both the tendency for individuals to alter their behaviour once they are insured against loss and the tendency for individuals to engage in insurance fraud

13. Adverse selection refers to a. the phenomenon that occurs when one party in an exchange takes advantage of knowing more than another party b. the tendency for individuals to alter their behaviour once they are insured against loss C. the tendency for individuals to engage in insurance fraud d. both the tendency for individuals to alter their behaviour once they are insured against loss and the tendency for individuals to engage in insurance fraud

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. We should expect to see more people in a group to purchase insurance as the probability of illness ___________ and the costs of an illness ____________.
Which of he following sections of an insurance contract limits coverage? A.Waiver of Premium B.Conditions C.Exclusions D.Declarations
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 Ⓒ
6. Suppose that there are two types of drivers: reckless and safe. Reckless drivers have a higher probability of accidents with an expected loss to the insurance company of $5000. Safe drivers have a lower probability of accidents with an expected loss to the insurance company of $1000. Insurer cannot distinguish between reckless and safe drivers but know that reckless drivers make up "B" proportion of all drivers. What single premium should the risk-neutral insurer charge? Assume that the insurance market is perfectly competitive. Is the above mentioned problem an example of Adverse Selection or Moral Hazard? Explain.
8. The type of credit insurance that landed AIG into trouble in 2008 is known as Question 8 options: a) insurance rate swaps. b) credit default swaps. c) default insurance. d) monoline insurance.
course: advanced microeconomics
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.
I need 4,5,6 answered
3. What do you think is the main reason that people buy life insurance?
Match the situation with its most appropriate label. Use each answer only once. ✓ Only sick people purchase health insurance ✓ I'm not as careful with my laptop computer because it is insured ✓ Company employees make personal phone calls during work hours. ✓ A self-employed stock broker rents office space in the most expensive building in the city. A. Adverse selection B. Signaling C. Principal-agent problem D. Moral hazard
QUESTION 48 A recent study demonstrated that when states pass laws mandating that health insurance cover treatment for alcoholism, alcoholism rates in the state as well as alcohol related medical issues and drunk driving increase significantly. This is an example of: A. Adverse selection B. Risk spreading C. Moral hazard D. Opportunism
MB, MC 10- 8. 6 4 2. Reference: Ref 16-2 O MB, Select one: A. III B. I MC MB₁ MB3 (Figure 16.2) Lilly, who owns the Cigar Bar and Grill, is considering whether to purchase fire insurance. Without insurance, the marginal benefit of precautions to reduce the risk of fire is given by MB₁. Which of the following statements is (are) TRUE? I. With full insurance, the marginal benefit of acting to reduce the risk of fire is given by MB3. C. II D. I and III 10 II. If Lilly purchases fire insurance, whether it is full or partial coverage, the marginal benefits of acting to reduce the risk of fire will increase. Quantity of actions taken to improve fire protection III. With partial insurance, the marginal benefit of acting to reduce the risk of fire is given by MB₂.