Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 17, Problem 2.7P
To determine
How the group medical coverage helps to reduce the problem of adverse selection.
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What are some strategies for reducing adverse selection in insurance markets? What sorts of problems do these solutions cause?
Name two solutions to adverse selection in insurance and explain how they work.
why is adverse selection important in healthcare insurance markets.
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Principles of Economics (12th Edition)
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- Distinguish between adverse selection and moral hazard as they relate to the insurance industry.arrow_forwardDescribe the challenges that adverseselection and moral hazard pose for insurance.arrow_forwardJenny believes that the unwillingness to buy insurance by young healthy people creates a moral hazard problem for health insurance companies. Diego disagrees, and believes that their unwillingness to buy health insurance creates an adverse selection problem. Who is right? Explain.arrow_forward
- How can deductibles, copayments, and coinsurance reduce moral hazard?arrow_forwardMany consider the profit motive of physicians and hospitals a moral hazard, and if patient care isn’t valued over profit, the patient may receive poor-quality treatment. Is this a fair assumption?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
- What is the significance when it comes to moral hazard to show it's efficient function of a medical market?arrow_forwardDon't use pen or paperarrow_forwardProvide an intuitive discussion of how adverse selection affects the used-car market. Describe one potential signal that can help alleviate the problem of adverse selection in this market and discuss how this signal satisfies the two necessary assumptions for it to be used as a credible signal.arrow_forward
- Moral hazard creates tradeoffs that complicate insurance design and policy choices. Imagine a linear demand curve for outpatient clinician visits, and assume at $100 per visit there would be 50,000 annual visits to a particular urban clinic. A politician would like to be popular, and proposes making clinic visits free (zero price). You know, as the city's staff health economist, that if this were to happen, the number of visits would rise to 75,000. Your job is to testify before the city council, and answer at least two questions: how much social welfare loss from moral hazard would occur; and how much tax money must be raised to finance clinic services if visits were made completely free? a. $2,500,000; $15,000,000 b. $5,000,000; $30,000,000 c. $1,250,000; $7,500,000 d. $3,750,000; $22,500,000arrow_forwardIn the context of asymmetric information, adverse selection and moral hazard, how does marketFailure occur? (Make reference to the insurance or financial market)arrow_forward"If the legal standard of care in a negligence rule is necessarily vague, the court should set it below the level of efficient precaution." Explain the economic argument in favor of this proposition.arrow_forward
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