6. Answer which happens, moral hazard or adverse selection, or nothing happens under each ofthe following situations.[M20]: A driver drives a car rough because s/he has a property insurance of a car.b. Adverse selection[M21]: Since a driver cannot distinguish among qualities of cars, s/he may buy a bad one.a. Moral hazardc. nothinga. Moral hazardb. Adverse selectionc. nothing[M22]: Banks look for lenders, but most customers who apply for loans seem to havedifficulty repaying them even in assuming they make an identical effort.a. Moral hazardb. Adverse selectionc. nothing

In economics and finance, "risk is the uncertainty associated with any outcome. Risk refers to the…

6. Answer which happens, moral hazard or adverse selection, or nothing happens under each of the following situations. [M20]: A driver drives a car rough because s/he has a property insurance of a car. a. Moral hazard b. Adverse selection c. nothing [M21]: Since a driver cannot distinguish among qualities of cars, s/he may buy a bad one. b. Adverse selection a. Moral hazard c. nothing [M22]: Banks look for lenders, but most customers who apply for loans seem to have difficulty repaying them even in assuming they make an identical effort. a. Moral hazard b. Adverse selection c. nothing

6. Answer which happens, moral hazard or adverse selection, or nothing happens under each of the following situations. [M20]: A driver drives a car rough because s/he has a property insurance of a car. a. Moral hazard b. Adverse selection c. nothing [M21]: Since a driver cannot distinguish among qualities of cars, s/he may buy a bad one. b. Adverse selection a. Moral hazard c. nothing [M22]: Banks look for lenders, but most customers who apply for loans seem to have difficulty repaying them even in assuming they make an identical effort. a. Moral hazard b. Adverse selection c. nothing

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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25. Which of the following is the best example of a moral hazard problem? Question 25 options: a) A borrower uses the proceeds of a business loan to gamble at a Las Vegas casino. b) A borrower decides to borrow at a fixed rather than a variable interest rate. c) A bank has difficulty in distinguishing between good and bad credit risks. d) A borrower makes all of her payments despite a downturn in her business.
Answer question 4, refer to attached image below for details.
Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for poor quality used cars is $10,000. Assume a potential used car buyer has imperfect information as to the condition of any given used car. Assume this potential buyer believes the probability a given used car is good quality is .60 and the probability a given used car is low quality is .40. Assume the seller has perfect information on all cars in inventory. How does the informational imbalance result in market failure? a. Only good quality cars are sold, hence the market under-provides used cars. b. Both poor and good quality cars are sold, hence the market over-provides used cars. c. Only poor quality cars are sold, hence the market under-provides used cars. d. Both poor and good quality cars are sold, hence the market efficiently provides used cars.
1) A key difficulty facing insurance companies is that people know more about their health than do insurance companies, and that those people who are seriously ill are the most likely to want to obtain health insurance. What is this phenomenon called? A) moral hazard B) economic irrationality C) asymmetric information D) adverse selection 2) An insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better that the company that he is more likely to make a claim on a policy. What is the term used to describe the situation above? A) moral hazard B) adverse selection C) asymmetric information D) economic irrationality 3) The term that is used to refer to a situation in which one party to an economic transaction has less information than the other party is A) inefficient market hypothesis. B) moral hazard. C) information disparity. D) asymmetric information. 4) Which of the following parties is…
This question is broken into 4 parts. Please answer all parts. A. Explain the relation between moral hazard and insurance premiums. B. Now think about how people with different health risks assess insurance products with a given deductible, and explain how supporters of minimizing adverse selection should think about a proposal (say from Bernie Sanders) that all insurance policies should have zero deductibles and coinsurance. C. Does community rating make the policy tradeoffs inherent in b harder or easier to manage? D. Would a purchase mandate make the policy tradeoffs inherent in b + c harder or easier to manage?
Please find the attached question.
My answer is wrong The answer：adverse selection causes an inefficiently large number of transactions to occur. is wrong！！！
Exercise 5: Insurance Consider two individuals, Dave and Eva. Both Dave and Eva have initial wealth 810,000 and face a 40% chance of losing L = 450, 000. Dave has von Neumann-Morgenstern utility function up(x) = x and Eva has von Neumann-Morgenstern utility function ug (x) = VT. 1. What do you know about Dave's and Eva's risk preferences? 2. What is the most Dave would be willing to pay for complete insurance against the loss? 3. What is the most Eva would be willing to pay for complete insurance against the loss? Suppose they are each able choose insurance with any coverage level z [0, 1] (i.e. 0 0. 6. Is Eva's optimal choice full insurance, i.e. z = 1?
Half of the used cars for sale in a market are good and the other half are lemons. Owners of good cars are willing to sell them for $1,200, while owners of lemons are willing to sell them for $50. There are many potential buyers who are willing to pay $1,500 for a good car and $300 for a lemon. Buyers cannot tell good cars from lemons, but the original owners know whether a car is a lemon or not. There will be an equilibrium in which all used cars sell for $1,150. There will be an equilibrium in which lemons sell for $50 and good used cars sell for $1,200. There will be an equilibrium in which all used cars sell for $800. The only equilibrium is one in which only lemons are sold. There will be an equilibrium in which lemons sell for $300 and good used cars sell for $1,500.