Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 16, Problem 13RQ
How can moral hazard lead to more costly insurance premiums than one was expected?
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What is moral hazard?
If people get higher pay from their insurance than their premiums, will this increase or decrease the death rate of average person? Is this example of moral hazard or adverse selection? How will the insurance company deal with this problem ?
Define moral hazard.
Chapter 16 Solutions
Principles of Economics 2e
Ch. 16 - For each of the following purchases, say whether...Ch. 16 - Why is there asymmetric information in the labor...Ch. 16 - Why is it difficult to measure health outcomes?Ch. 16 - Why might it be difficult for a buyer and seller...Ch. 16 - What do economists (and used-car dealers) mean by...Ch. 16 - What are some ways a seller of goods might...Ch. 16 - What are some ways a seller of labor (that is,...Ch. 16 - What are some ways that someone looking for a loan...Ch. 16 - What is an insurance premium?Ch. 16 - In an insurance system, would you expect each...
Ch. 16 - What is an actuarially fair insurance policy?Ch. 16 - What is the problem of moral hazard?Ch. 16 - How can moral hazard lead to more costly insurance...Ch. 16 - Define deductibles, copayments, and coinsurance.Ch. 16 - How can deductibles, copayments, and coinsurance...Ch. 16 - What is the key difference between a...Ch. 16 - How might adverse selection make it difficult for...Ch. 16 - What are some of the metrics economists use to...Ch. 16 - You are on the board of directors of a private...Ch. 16 - A website offers a place for people to buy and...Ch. 16 - How do you think the problem of moral hazard might...Ch. 16 - To what sorts of customers would an insurance...Ch. 16 - Using Exercise 16.20, sketch the effects in parts...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- What are moral hazard and adverse selection? How are they similar, how are they different? What causes each?arrow_forwardDistinguish the difference between adverse selection and moral hazard.arrow_forwardDifferentiate between adverse selection and moral hazard problems with one examplesarrow_forward
- The used car market can become a “lemon” market, where sellers of poor quality used cars will stay in the market, while sellers of good quality used cars will exit the market. Why is this happening? Is this adverse selection or moral hazard? Give an argumentarrow_forwardHow we know that policies offered by private insurance companies are worse than fair game?arrow_forwardAdverse Selection refers to a situation in insurance markets in which individuals change their behavior after obtaining coverage, resulting in increased insurance costs True or Falsearrow_forward
- How does asymmetric information about consumer types affect market outcomes in a scenario where sellers cannot perfectly distinguish between high-value and low-value customers?arrow_forwardGive an example, real or imaginary, of a moral hazard problem. Again, your example must clearly point out: what information is private/asymmetric (is it an attribute or an action?) which party has the private information when does the information asymmetry arise (before or after the contract/transaction?) what is the likely outcome and in which way it can be inefficientarrow_forwardWhat are some ways a seller of goods might reassure a possible buyer who is faced with imperfect information?arrow_forward
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