Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 22, Problem 1QCMC
To determine
Example of adverse selection.
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Because Elaine has a family history of significantmedical problems, she buys health insurance,whereas her friend Jerry, who has a healthier family,goes without. This is an example ofa. moral hazard.b. adverse selection.c. signaling.d. screening
What are some strategies for reducing adverse selection in insurance markets? What sorts of problems do these solutions cause?
Suppose an individual saves as precaution against adverse events, like unemployment. This is an example of
a-adverse selection
b-self-insurance
c-adverse saving
d-moral hazard
Chapter 22 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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Similar questions
- How might adverse selection make it difficult for an insurance market to operate?arrow_forwardwhy is adverse selection important in healthcare insurance markets.arrow_forwardBriefly explain what it means for information to be asymmetric. a. What is Moral Hazard? b. Identify and briefly explain three methods that insurance companies could use to off-set the moral hazard associated with their industry. c. What is Adverse Selection?arrow_forward
- People drive faster when they have auto insurance. This is an example of: a. Adverse selection. b. Asymmetric information. c. Moral hazard.arrow_forwardIf people get higher pay from insurance than their premiums. Will this increase or decrease the death rate of average persons? Is this an example of moral hazard or adverse seletion? How will an insurance company deal with these problems?arrow_forwardAdverse selection occurs because of A) spreading of risks. B) diminishing marginal utility. C) of imperfect information. D) moral hazardarrow_forward
- Jenny 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_forwardSomeone indicated that employee’s absence from work despite meeting the eight hours per day requirement affect productivity and increase cost of business. If an employee makes up the hours by coming early and leaving late, how can you call it an example of moral hazard when the manager can easily correct this behavior? Please explain to the class.arrow_forwardHow is the moral hazard problem relevant to the health care market?arrow_forward
- Dr. Wexler displays her medical degree in her officewaiting room, hoping patients will be impressed thatshe attended a prestigious medical school. This isan example ofa. moral hazard.b. adverse selection.c. signaling.d. screening.arrow_forwardPrivate markets may underallocate resources to a good or service that is affected by the moral hazard problem because the sellers of the product will not be able to Multiple Choice A. tell which specific buyers may be affected by moral hazard. B. know the degree to which moral hazard may lead any specific buyer to engage in costly behavior. C. both A and B. D. neither A nor B.arrow_forwardDistinguish between adverse selection and moral hazard as they relate to the insurance industry.arrow_forward
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