3. The figure below demonstrates the moral hazard with insurance coverage. When consumer pays 50% coinsurance at each visit, quantity demanded rises from q₁ to q2 and the price for each visit falls from P1 to P2 per visit. The shaded area is the deadweight loss due to moral hazard. Price (P) MC Number of Physician Visits (Q) Q₂ 2₂ A. If coinsurance rate drops from 50% to 0%, how quantity and price per visit will change? Briefly explain. B. Suggest two methods to avoid moral hazard problems in designing insurance benefits. Briefly explain. C. If insurance for very high-cost items (e.g. organ transplant) can be viewed as an income transfer from the risk pool to the affected patients, how will this affect the welfare loss from moral hazard? Brief explain.

3. The figure below demonstrates the moral hazard with insurance coverage. When consumer pays 50% coinsurance at each visit, quantity demanded rises from q₁ to q2 and the price for each visit falls from P1 to P2 per visit. The shaded area is the deadweight loss due to moral hazard. Price (P) MC Number of Physician Visits (Q) Q₂ 2₂ A. If coinsurance rate drops from 50% to 0%, how quantity and price per visit will change? Briefly explain. B. Suggest two methods to avoid moral hazard problems in designing insurance benefits. Briefly explain. C. If insurance for very high-cost items (e.g. organ transplant) can be viewed as an income transfer from the risk pool to the affected patients, how will this affect the welfare loss from moral hazard? Brief explain.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter16: Information, Risk, And Insurance

Section: Chapter Questions

Problem 20CTQ: A website offers a place for people to buy and sell emeralds, but information about emeralds can be...

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