Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Question
Chapter 19, Problem 7MC
To determine
Risk averse.
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For each of the following kinds of insurance, give anexample of behavior that reflects moral hazard andanother example of behavior that reflects adverseselection.a. health insuranceb. car insurancec. life insurance
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If 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?
Chapter 19 Solutions
Managerial Economics: A Problem Solving Approach
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- Insurance is basically the transferring of risk from one party to another. A. True B. False The cost of healthcare is higher than most other developed countries. A. True B. Falsearrow_forwardHow does adverse selection impact the pricing and sustainability of insurance markets?arrow_forwardBecause of the moral hazard problem, a-the government has increased incentive to regulate insurance markets. b-low-risk individuals do not choose insurance. c-the costs of providing insurance decreases. d-full insurance may no longer be efficient.arrow_forward
- Individuals will prefer to fully insure against a potential adverse event if A. individuals are risk-loving and insurance is priced at an actuarially fair rate. B. individuals are risk-averse and insurance is priced at an actuarially fair rate. C. individuals are risk-loving and insurance is priced above the actuarially fair rate. D. individuals are risk-averse and insurance is priced above the actuarially fair rate.arrow_forwardIf you understand the principles of insurance, you will understand why it probably makes sense to purchase insurance to guard against large losses, like the destruction of a home you own, but probably does not make sense to purchase insurance to guard against small losses, like the failure of a TV you buy.arrow_forwardExplain the purpose of insurance. If a mother purchases health insurance for her and her four (4) children, who is the policyholder, and who is (are) the beneficiaries?arrow_forward
- ___ occurs when insurance companies structure plans that provide an incentive for healthier consumers to enroll while discouraging enrollment of higher-risk individuals a. Guaranteed renewability b. Cherry-picking c. Moral Hazard d. Asymmetric Information e. Adverse Selectionarrow_forwardThe key concept that explains why individuals choose to obtain insurance and why they may be less likely to gamble with their wealth is: a. increasing marginal utility in wealth b. constant marginal utility in wealth c. decreasing marginal utility in wealtharrow_forwardIf people get higher pay from insurance than their pre premiums. Will this increase or decrease the death rate of average persons? Is this an example of moral hazard or adverse selection? How will an insurance company deal with these problems.arrow_forward
- Conrad is an architect who has just been sued because a building he helped design has collapsed and injured several people. What type of insurance would help him with court costs and settlements. A. legal malpractice B. universal C. medical malpractice D. general liability E. catastrophicarrow_forwardDraw the market for risk, where consumers of insurance supply risk and insurance companies demand risk. Show the effects of the individual mandate (the mandate is everyone has to have insurance) in the graph. What will happen to the price of risk?arrow_forwardWhat are some strategies for reducing adverse selection in insurance markets? What sorts of problems do these solutions cause?arrow_forward
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