Bundle: Principles of Economics, Loose-leaf Version, 8th + LMS Integrated MindTap Economics, 2 terms (12 months) Printed Access Card
8th Edition
ISBN: 9781337607735
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 22, Problem 3CQQ
To determine
An example of screening.
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Briefly 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?
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.
What are some strategies for reducing adverse selection in insurance markets? What sorts of problems do these solutions cause?
Chapter 22 Solutions
Bundle: Principles of Economics, Loose-leaf Version, 8th + LMS Integrated MindTap Economics, 2 terms (12 months) Printed Access Card
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Similar questions
- Which of the following is an example of moral hazard? Group of answer choices A. Reckless drivers are the ones most likely to buy automobile insurance. b. Retail stores located in high-crime areas tend to buy theft insurance more often than stores located in low-crime areas. C. Drivers who have many accidents prefer to buy cars with air bags. D. Employees recently covered by the company health plan start going to the doctor every time they get a cold. E. Company divisions try to improve profitability at each other's expense.arrow_forwardIn economic terms, moral hazard is the negative relationship between the out-of-pocket price of the physician visit and the quantity of the physician visits demanded in a given time period. a.True b.Falsearrow_forwardBecause 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. screeningarrow_forward
- How is the moral hazard problem relevant to the health care market?arrow_forwardIf 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 ?arrow_forwardwhy is adverse selection important in healthcare insurance markets.arrow_forward
- In the automobile insurance market, adverse selection occurs when Group of answer choices A) drivers with greater risks buy a policy with large deductibles. B) drivers with greater risks buy a policy with no deductibles. C) uninsured drivers drive recklessly. D) insured drivers drive recklessly.arrow_forwardIf people get higher pay for insurance than their premium will this increase or decrease the death rate of average persons? Is this an example of a moral hazard or harvest selection. How will an insurance company deal with this problemarrow_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_forward
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