EBK PRINCIPLES OF ECONOMICS
7th Edition
ISBN: 8220102958395
Author: Mankiw
Publisher: CENGAGE L
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Chapter 22, Problem 3QCMC
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?
What are some strategies for reducing adverse selection in insurance markets? What sorts of problems do these solutions cause?
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.
Chapter 22 Solutions
EBK PRINCIPLES OF ECONOMICS
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Similar questions
- In 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_forwardHow is the moral hazard problem relevant to the health care market?arrow_forward
- 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 ?arrow_forwardwhy is adverse selection important in healthcare insurance markets.arrow_forward7.arrow_forward
- My answer is wrong The answer：adverse selection causes an inefficiently large number of transactions to occur. is wrong！！！arrow_forwardWhat is the significance when it comes to moral hazard to show it's efficient function of a medical market?arrow_forwardThe 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_forward
- Distinguish between adverse selection and moral hazard as they relate to the insurance industry.arrow_forwardMoral 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_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_forward
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