Microeconomics, Student Value Edition (6th Edition)
6th Edition
ISBN: 9780134125756
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 7, Problem 7.3.10PA
To determine
Identifying adverse selection and moral hazard problem.
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Students have asked these similar questions
What is the significance when it comes to moral hazard to show it's efficient function of a medical market?
Give an example, real or imaginary, of a moral hazard problem.
Again, your example must clearly point out:
what information is private/asymmetric (is it an attribute or an action?)
which party has the private information
when does the information asymmetry arise (before or after the contract/transaction?)
what is the likely outcome and in which way it can be inefficient
If the demand curve is steeper for particular health services the moral hazard is less ?
True or false
Explain briefly.
Chapter 7 Solutions
Microeconomics, Student Value Edition (6th Edition)
Ch. 7 - Prob. 7.1.1RQCh. 7 - Prob. 7.1.2RQCh. 7 - Prob. 7.1.3RQCh. 7 - Prob. 7.1.4PACh. 7 - Prob. 7.1.5PACh. 7 - Prob. 7.1.6PACh. 7 - Prob. 7.2.1RQCh. 7 - Prob. 7.2.2RQCh. 7 - Prob. 7.2.3RQCh. 7 - Prob. 7.2.4RQ
Ch. 7 - Prob. 7.2.5PACh. 7 - Prob. 7.2.6PACh. 7 - Prob. 7.2.7PACh. 7 - Prob. 7.2.8PACh. 7 - Prob. 7.2.9PACh. 7 - Prob. 7.3.1RQCh. 7 - Prob. 7.3.2RQCh. 7 - Prob. 7.3.3RQCh. 7 - Prob. 7.3.4RQCh. 7 - Prob. 7.3.5PACh. 7 - Prob. 7.3.6PACh. 7 - Prob. 7.3.7PACh. 7 - Prob. 7.3.8PACh. 7 - Prob. 7.3.9PACh. 7 - Prob. 7.3.10PACh. 7 - Prob. 7.3.11PACh. 7 - Prob. 7.3.12PACh. 7 - Prob. 7.3.13PACh. 7 - Prob. 7.3.14PACh. 7 - Prob. 7.3.15PACh. 7 - Prob. 7.4.1RQCh. 7 - Prob. 7.4.2RQCh. 7 - Prob. 7.4.3RQCh. 7 - Prob. 7.4.4RQCh. 7 - Prob. 7.4.5RQCh. 7 - Prob. 7.4.6PACh. 7 - Prob. 7.4.7PACh. 7 - Prob. 7.4.8PACh. 7 - Prob. 7.4.9PACh. 7 - Prob. 7.4.10PACh. 7 - Prob. 7.4.11PACh. 7 - Prob. 7.4.12PACh. 7 - Prob. 7.4.13PACh. 7 - Prob. 7.4.14PA
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Similar questions
- What is Moral Hazard, and how does moral hazard affect the likelihood a population demands medical care and the total demand for medical care?arrow_forwardConsider the problems of adverse selection and moral hazard arising from asymmetric information: a. Consider government-provided health insurance, such as OHIP in Ontario, and government-mandated health insurance, such as Obamacare in the United States. Which problem are such programs intended to combat: adverse selection or moral hazard? Very briefly characterize the tradeoff between adverse selection and moral hazard as it relates to health insurance public policy.arrow_forwardHow is the moral hazard problem relevant to the health care market?arrow_forward
- Consider the model of the market for lemons from Chapter 22. Suppose that there are two types of used cars — good ones and lemons — and that sellers know which type of car they have. Buyers do not know which type of car a seller has. The fraction of used cars of each type is 21 and buyers know this. Let’s suppose that a seller who has a good car values it at $10,000 and a seller with a lemon values the lemon at $5,000. A seller is willing to sell his car for any price greater than or equal to his value for the car; the seller is not willing to sell the car at a price below the value of the car. Buyers’ values for good cars and lemons are $14,000 and $8,000, respectively. As in Chapter 22 we will assume that buyers are risk-neutral; that is, they are willing to pay their expected value of a car. (a) Is there an equilibrium in the used-car market in which all types of cars are sold? Briefly explain.(b) Is there an equilibrium in the used-car market in which only lemons are sold? Briefly…arrow_forwardFederal law allows workers who leave a job to continue to participate in the health insurance they were receiving through their previous employer. However, they have to pay the full monthly premium (including both the employee and employer portions), as well as a 2 percent administrative fee. This high price has led many people, especially the healthier ones, to drop coverage. Insurance companies report that these plans lose them money. This phenomenon is an example of: a. Adverse Selection b. Moral Hazard c. Tragedy of the Commons d. Commodity Egalitarianismarrow_forwardIn the mid-1990s, the state of New Jersey revised its rules for the individual insurance market and began requiring that insurers charge the same premiums for the same coverage to all applicants. Assuming that insurers had previously used medical underwriting, which of the following is a predictable consequence of adverse selection? 1) Insurance becomes less attractive to the healthiest individuals, so fewer of them buy it 2) Insurers’ average costs of providing coverage increase because of a changing risk pool 3) The average age of those buying in the individual market goes up 4) All of the abovearrow_forward
- Which is an example of asymmetric information? a person knows more about health decisions they make than the health insurance company a brand knows more about the durability of a new product than consumers a smart phone owner knows more about the chances that the phone willI be dropped in water than the phone insurance company all of these.arrow_forwardExercise 1.12. Consider the following game. There is a club with three members: Ann, Bob and Carla. They have to choose which of the three is going to be president next year. Currently Ann is the president. Each member is both a candidate and a voter. Voting is as follows: each member votes for one candidate (voting for oneself is allowed); if two or more people vote for the same candidate then that person is chosen as the next president; if there is complete disagreement, in the sense that there is exactly one vote for each candidate, then the person from whom Ann voted is selected as the next president. (a) Represent this voting procedure as a game frame, indicating inside each cell of each table which candidate is elected. (b) Assume that the players' preferences are as follows: AnnAm Carla Ann Bob, Carla Bob Ann, Bob Carla Ann Caria Carla. Using utility values 0, 1 and 2, convert the game frame into a game. (c) Apply the IDWDS to the game of part (b). Is there a weak iterated…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
- The problem of adverse selection in insurance markets means that it is generally a bad deal for companies to offer insurance at the same price for all potential customers. Why then do we observe some insurance companies (such as those selling “trip insurance” that refunds money to people who purchase trips that they are unable to take) do exactly this?arrow_forwardA noted insurance authority has said, “Because the financing of long-term care is inconsistent with insurance principles, it is a problem that does not lend itself to solution through insurance.” In what ways is the financing of long-term care inconsistent with insurance principles? What, in your opinion, is the solution to the problem of financing long-term care?arrow_forwardHow might adverse selection make it difficult for an insurance market to operate?arrow_forward
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