7. George Akerlof, Michael Spence, and Joseph Stiglitz were awarded the 2001 Nobel prize in economics for their research on (a) contracts with moral hazard (b) hyperbolic discounting and intertemporal preferences (c) incoherent probability judgments and Dutch books (d) markets with asymmetric information

7. George Akerlof, Michael Spence, and Joseph Stiglitz were awarded the 2001 Nobel prize in economics for their research on (a) contracts with moral hazard (b) hyperbolic discounting and intertemporal preferences (c) incoherent probability judgments and Dutch books (d) markets with asymmetric information

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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20-4. Suppose that every driver faces a 1% probability of an automobile accident every year. An accident will, on average, cost each driver $10,000. Suppose there are two types of individuals: those with $60,000 in he bank those with $5,000 in the bank declare bankruptcy if they get in a accident. In bankruptcy, creditors receive only what individuals have in the bank . What is the actuarily fair price insurance? What price individuals wit $5,000 in the bank willing to pay or the insurance? Will those with $5,000 in the bank voluntarily purchase insurance? What is the effect of state law forcing individuals to purchase auto liability insurance?
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Q37 Consider a vaccination programme that is fully effective if everybody is vaccinated. Now suppose that all but one are vaccinated and, as a result, that one person will not contract the virus. This situation is called... a. The common property problem. b. Moral hazard. c. Adverse selection. d. The free-rider problem. e. Asymmetric information. Clear my choice
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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.
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.
Alana wishes to obtain auto insurance. She wants 100/300/100 liability coverage, $250 deductible collision and full coverage comprehensive. She lives in territory 2 and has been assigned to driver class 2 with a rating factor of 1.25. Based on Table 19-6 and Table 19-7, what would be her total premium, if her three-year-old car were in model class L? (Round your answer to the nearest cent.) a. $355.00 b. $365.00 c. $456.25 d. $465.38
Answer question 4, refer to attached image below for details.
Question 1. (a) Discuss how asymmetric information can influence decision-making: (i) In game theory, regarding competitors’ pricing. (ii) Between insurance companies and their clients.
Which of the following is NOT an example of moral hazard? Joey borrowed $20,000 from a bank to open a coffee shop but he actually spent the money to buy a fancy race car. O A man with a family history of high blood pressure buys a health insurance policy. A homeowner with fire insurance on the house smokes in bed. O A bank with a high leverage carries out reckless investment plans.
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?
Asymmetric information and/or imperfect information can cause two forms of market failure: 1) adverse selection and 2) moral hazard. Asymmetric information is where one party in the transaction has more information than the other party in the transaction. Imperfect information is a situation in which neither party has perfect information about the good/service being exchanged in a transaction. Such goods and services are sometimes referred to as "experience goods." In the late 1990s, car leasing was very popular in the United States. A customer would lease a car from the manufacturer for a set term, usually two years, and then have the option of keeping the car. If the customer decided to keep the car, the customer would pay a price to the manufacturer, the "residual value," computed as 60% of the new car price. The manufacturer would then sell the returned cars at auction. In 1999, the manufacturer lost an average of $480 on each returned car. (The auction price was, on average, $480…