Example of adverse selection.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 22, Problem 1CQQ

To determine

Example of adverse selection.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

Elaine, the buyer of health insurance knows more about her own health problems than the insurance company. The price of health insurance reflects the costs of an unhealthier person than an average person. So, Jerry who is healthy may observe the high price of insurance and decide not to buy it. Thus, option ‘b’ is correct.

Option (a):

Inspite of getting a health insurance, Elaine is not imperiling herself to illness. Hence, option ‘a’ is incorrect.

Option (c):

Health insurance does not signal the health issues of a person. Hence, option ‘c’ is incorrect.

Option (d):

The insurance company is not asking the parties for their health information. Hence, option ‘d’ is incorrect.

Economics Concept Introduction

Concept introduction:

Adverse selection: Adverse selection refers to a situation where there is a lack of information existing in the market before the economic transaction takes place, thereby resulting in an undesired outcome.

Moral hazard: Moral hazard refers to changes in the behavior of people after they have entered into a transaction that makes the other party in the transaction worse off.

Signaling: Signaling is an action taken by an informed party to reveal private information to an uninformed party.

Screening: Screening refers to the action of one party in the process of finding the required skill and information of other party.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

A young woman plans to retire early in 25 years. She believes she can save $10,000 each year starting now. If she plans to begin withdrawing money one year after she makes her last payment into the retirement account (i.e., in the 26th year), what uniform amount could she withdraw each year for 30 years, if the account earns an interest rate of 8% per year? a) Correctly plot the cash flow diagram with its respective vectors, arrowheads, units, and currency values. b) Correct mathematical approach and development, use of compound interest factors.c) Financial logic in the development of the exercise and application of the concept of time value of money. d) Final numerical answer and writing in prose with a minimum of 20 words and a maximum of 50 words of the obtained numerical interpretation.

A hospital charges $200 for a medical procedure, and 1,000 patients use the service. The hospital raises the price to $250, and the number of patients drops to 900. Calculate the price elasticity of demand (PED) and explain your answer. (show all working) Briefly explain how elasticity affects government health policies in the following cases: • Taxes on unhealthy products (cigarettes, alcohol, sugary drinks) • Subsidizing Preventive Care (e.g., vaccines, screenings) Drug Price Controls & Generic Substitutions Co-Payments & Insurance Design

Assume the United States is a large consumer of steel, able to influence the world price. DUS and SUS denote its demand and supply schedules in Figure 1. The overall (United States plus world) supply schedule of steel is denoted by SUS.+W. Figure 1 Import Tariff Levied by a Large Country Answer all questions (a-f) by referring to Figure 1 above. a) Calculate the free trade market equilibrium price, domestic consumption, and volumE Answer all questions (a-f) by referring to Figure 1 above. a) Calculate the free trade market equilibrium price, domestic consumption, and volume of steel imports by the US. [5 marks] b) Suppose the United States imposes a tariff (t) of $100 on each ton of steel imported. With the tariff, calculate the price of steel and the volume of steel imports by the US. [5 marks] c) Of the $100 tariff, how much is passed on to the US consumer via a higher price, and how much is borne by the foreign exporter? [5 marks] d) Calculate the tariff's deadweight welfare loss to…

Answer 2

Question

Chapter 22, Problem 1CQQ

To determine

Example of adverse selection.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

Elaine, the buyer of health insurance knows more about her own health problems than the insurance company. The price of health insurance reflects the costs of an unhealthier person than an average person. So, Jerry who is healthy may observe the high price of insurance and decide not to buy it. Thus, option ‘b’ is correct.

Option (a):

Inspite of getting a health insurance, Elaine is not imperiling herself to illness. Hence, option ‘a’ is incorrect.

Option (c):

Health insurance does not signal the health issues of a person. Hence, option ‘c’ is incorrect.

Option (d):

The insurance company is not asking the parties for their health information. Hence, option ‘d’ is incorrect.

Economics Concept Introduction

Concept introduction:

Adverse selection: Adverse selection refers to a situation where there is a lack of information existing in the market before the economic transaction takes place, thereby resulting in an undesired outcome.

Moral hazard: Moral hazard refers to changes in the behavior of people after they have entered into a transaction that makes the other party in the transaction worse off.

Signaling: Signaling is an action taken by an informed party to reveal private information to an uninformed party.

Screening: Screening refers to the action of one party in the process of finding the required skill and information of other party.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 22, Problem 1CQQ

To determine

Example of adverse selection.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

Elaine, the buyer of health insurance knows more about her own health problems than the insurance company. The price of health insurance reflects the costs of an unhealthier person than an average person. So, Jerry who is healthy may observe the high price of insurance and decide not to buy it. Thus, option ‘b’ is correct.

Option (a):

Inspite of getting a health insurance, Elaine is not imperiling herself to illness. Hence, option ‘a’ is incorrect.

Option (c):

Health insurance does not signal the health issues of a person. Hence, option ‘c’ is incorrect.

Option (d):

The insurance company is not asking the parties for their health information. Hence, option ‘d’ is incorrect.

Economics Concept Introduction

Concept introduction:

Adverse selection: Adverse selection refers to a situation where there is a lack of information existing in the market before the economic transaction takes place, thereby resulting in an undesired outcome.

Moral hazard: Moral hazard refers to changes in the behavior of people after they have entered into a transaction that makes the other party in the transaction worse off.

Signaling: Signaling is an action taken by an informed party to reveal private information to an uninformed party.

Screening: Screening refers to the action of one party in the process of finding the required skill and information of other party.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 22, Problem 1CQQ

To determine

Example of adverse selection.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

Elaine, the buyer of health insurance knows more about her own health problems than the insurance company. The price of health insurance reflects the costs of an unhealthier person than an average person. So, Jerry who is healthy may observe the high price of insurance and decide not to buy it. Thus, option ‘b’ is correct.

Option (a):

Inspite of getting a health insurance, Elaine is not imperiling herself to illness. Hence, option ‘a’ is incorrect.

Option (c):

Health insurance does not signal the health issues of a person. Hence, option ‘c’ is incorrect.

Option (d):

The insurance company is not asking the parties for their health information. Hence, option ‘d’ is incorrect.

Economics Concept Introduction

Concept introduction:

Adverse selection: Adverse selection refers to a situation where there is a lack of information existing in the market before the economic transaction takes place, thereby resulting in an undesired outcome.

Moral hazard: Moral hazard refers to changes in the behavior of people after they have entered into a transaction that makes the other party in the transaction worse off.

Signaling: Signaling is an action taken by an informed party to reveal private information to an uninformed party.

Screening: Screening refers to the action of one party in the process of finding the required skill and information of other party.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 22, Problem 1CQQ

To determine

Example of adverse selection.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

Elaine, the buyer of health insurance knows more about her own health problems than the insurance company. The price of health insurance reflects the costs of an unhealthier person than an average person. So, Jerry who is healthy may observe the high price of insurance and decide not to buy it. Thus, option ‘b’ is correct.

Option (a):

Inspite of getting a health insurance, Elaine is not imperiling herself to illness. Hence, option ‘a’ is incorrect.

Option (c):

Health insurance does not signal the health issues of a person. Hence, option ‘c’ is incorrect.

Option (d):

The insurance company is not asking the parties for their health information. Hence, option ‘d’ is incorrect.

Economics Concept Introduction

Concept introduction:

Adverse selection: Adverse selection refers to a situation where there is a lack of information existing in the market before the economic transaction takes place, thereby resulting in an undesired outcome.

Moral hazard: Moral hazard refers to changes in the behavior of people after they have entered into a transaction that makes the other party in the transaction worse off.

Signaling: Signaling is an action taken by an informed party to reveal private information to an uninformed party.

Screening: Screening refers to the action of one party in the process of finding the required skill and information of other party.

Answer 6

Chapter 22, Problem 1CQQ

To determine

Example of adverse selection.

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

Elaine, the buyer of health insurance knows more about her own health problems than the insurance company. The price of health insurance reflects the costs of an unhealthier person than an average person. So, Jerry who is healthy may observe the high price of insurance and decide not to buy it. Thus, option ‘b’ is correct.

Option (a):

Inspite of getting a health insurance, Elaine is not imperiling herself to illness. Hence, option ‘a’ is incorrect.

Option (c):

Health insurance does not signal the health issues of a person. Hence, option ‘c’ is incorrect.

Option (d):

The insurance company is not asking the parties for their health information. Hence, option ‘d’ is incorrect.

Economics Concept Introduction

Concept introduction:

Adverse selection: Adverse selection refers to a situation where there is a lack of information existing in the market before the economic transaction takes place, thereby resulting in an undesired outcome.

Moral hazard: Moral hazard refers to changes in the behavior of people after they have entered into a transaction that makes the other party in the transaction worse off.

Signaling: Signaling is an action taken by an informed party to reveal private information to an uninformed party.

Screening: Screening refers to the action of one party in the process of finding the required skill and information of other party.

Answer 7

Chapter 22, Problem 1CQQ

To determine

Example of adverse selection.

Answer 8

Expert Solution & Answer

Answer to Problem 1CQQ

Option ‘b’ is the correct answer.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Option (b):

Elaine, the buyer of health insurance knows more about her own health problems than the insurance company. The price of health insurance reflects the costs of an unhealthier person than an average person. So, Jerry who is healthy may observe the high price of insurance and decide not to buy it. Thus, option ‘b’ is correct.

Option (a):

Inspite of getting a health insurance, Elaine is not imperiling herself to illness. Hence, option ‘a’ is incorrect.

Option (c):

Health insurance does not signal the health issues of a person. Hence, option ‘c’ is incorrect.

Option (d):

The insurance company is not asking the parties for their health information. Hence, option ‘d’ is incorrect.

Answer 12

Economics Concept Introduction

Concept introduction:

Adverse selection: Adverse selection refers to a situation where there is a lack of information existing in the market before the economic transaction takes place, thereby resulting in an undesired outcome.

Moral hazard: Moral hazard refers to changes in the behavior of people after they have entered into a transaction that makes the other party in the transaction worse off.

Signaling: Signaling is an action taken by an informed party to reveal private information to an uninformed party.

Screening: Screening refers to the action of one party in the process of finding the required skill and information of other party.

Answer 13

Ch. 22.1 - Prob. 1QQ Ch. 22.2 - Prob. 2QQ Ch. 22.3 - Prob. 3QQ Ch. 22 - Prob. 1CQQ Ch. 22 - Prob. 2CQQ Ch. 22 - Prob. 3CQQ Ch. 22 - Prob. 4CQQ Ch. 22 - Prob. 5CQQ Ch. 22 - Prob. 6CQQ Ch. 22 - Prob. 1QR

Example of adverse selection.

Example of adverse selection.

Answer to Problem 1CQQ

Explanation of Solution

Want to see more full solutions like this?

Chapter 22 Solutions