6. Problems in insurance markets Consider the following story: Province Ranch, an industry leading provider in vehicle insurance, recently expanded to cover motorhomes. Province Ranch had concerns that the most likely motorhome insurance customers are those who drive their motorhomes in high-density traffic areas (thus exposing them to the most damage on the road), because they would benefit most from insurance coverage. Since Province Ranch is unable to distinguish perfectly between high-risk and low-risk areas, it raised its motorhome premiums in an effort to account for the riskier drivers. The economic problem in this story is known as: Adverse selection Screening O Signaling Moral hazard

Alana wishes to obtain auto insurance. She wants 100/300/100 liability coverage, $250 deductible collision and full coverage comprehensive. She lives in territory 2 and has been assigned to driver class 2 with a rating factor of 1.25. Based on Table 19-6 and Table 19-7, what would be her total premium, if her three-year-old car were in model class L? (Round your answer to the nearest cent.) a. $355.00 b. $365.00    c. $456.25 d. $465.38

1) A key difficulty facing insurance companies is that people know more about their health than do insurance companies, and that those people who are seriously ill are the most likely to want to obtain health insurance. What is this phenomenon called? A) moral hazard B) economic irrationality C) asymmetric information D) adverse selection 2)  An insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better that the company that he is more likely to make a claim on a policy. What is the term used to describe the situation above? A) moral hazard B) adverse selection C) asymmetric information D) economic irrationality 3) The term that is used to refer to a situation in which one party to an economic transaction has less information than the other party is A) inefficient market hypothesis. B) moral hazard. C) information disparity. D) asymmetric information. 4) Which of the following parties is…

List two possible solutions private insurance firms have at their disposal to correct the market failure due to the asymmetry of information...