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

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Individuals will prefer to fully insure against a potential adverse event if A. individuals are risk-loving and insurance is priced at an actuarially fair rate. B. individuals are risk-averse and insurance is priced at an actuarially fair rate. C. individuals are risk-loving and insurance is priced above the actuarially fair rate. D. individuals are risk-averse and insurance is priced above the actuarially fair rate.
1. Mel is thinking of going on a cruise. Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50. The probability of nice weather is 60 percent and the probability of bad weather is 40 percent. Trip insurance is sometimes available. If purchased, it allows travelers to delay the cruise until the weather is nice. Suppose that the price of the cruise is $1,200. If Mel is risk-neutral, then Mel should: not buy trip insurance. only buy trip insurance if it costs less than $780. only buy trip insurance if it costs less than $20. only buy trip insurance if it costs less than $50. 2. Several web sites, like Pricewatch.com, allow consumers to input the name of a product, and the site then returns a list of suppliers with their respective prices for the product. This: increases the benefit of search.. increases the free-rider problem. reduces the benefit of search. reduces the cost of search.
In this simple insurance model, a company has a monopoly over a small market. There are 100K potential customers with a low risk profile, 60K potential customers with a medium risk profile, and 10K potential customers with a high risk profile. A person’s risk profile is important as it determines how much insurance is worth to the customer and how much money the customer will cost on average to the insurance company. The following table summarizes the estimates put together by the company: Low risk profile Medium risk profile High risk profile Number of potential customers 100,000 60,000 10,000 Expected expense per customer $2K $7K $15K Maximal price the customer isready to pay for insurance $3K $8K $16K Remark: Explaining where these numbers come from would require a subtler model that describes the risk covered by the insurance policy. While there is no need to do this for the purpose of this exercise, notice though how the maximal price…
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
Short questions a. Describe the first and second Welfare Theorem b. Describe the difference between risk aversion, risk neutrality and risk prefering c. Describe and explain the non-satiation assumption d. Describe and explain the difference between adverse selection and moral hazard e. Describe and explain the difference between income effect and substitution effect
Federal law allows workers who leave a job to continue to participate in the health insurance they were receiving through their previous employer. However, they have to pay the full monthly premium (including both the employee and employer portions), as well as a 2 percent administrative fee. This high price has led many people, especially the healthier ones, to drop coverage. Insurance companies report that these plans lose them money. This phenomenon is an example of: a. Adverse Selection b. Moral Hazard c. Tragedy of the Commons d. Commodity Egalitarianism
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?
An insurance company estimates that drivers have a 5% chance of getting into an accident that will cost the driver $10,000. There are two types of drivers: the ones with $50,000 in the bank and the ones with only $5,000. In case of an accident those with $5,000 will declare bankruptcy and creditors can only recover $5,000. What is the fair pair of insurance and will those with $5,000 in the bank buy it? Why?
My answer is wrong The answer：adverse selection causes an inefficiently large number of transactions to occur. is wrong！！！
Many people in the property and liability insurance industry complain about the “automobile problem.” The “automobile problem” consists of a series of interrelated problems. What factors have combined to produce a problem in the automobile insurance area?
___ occurs when insurance companies structure plans that provide an incentive for healthier consumers to enroll while discouraging enrollment of higher-risk individuals a. Guaranteed renewability b. Cherry-picking c. Moral Hazard d. Asymmetric Information e. Adverse Selection