A car insurance company will give a discount to safer drivers. To get the discount, the car insurancecompany uses a mobile app to monitor speed, acceleration, and cellphone use while driving. Driverswith good behaviors will receive a discount on the premium. What problem is the insurancecompany trying to solve?Moral hazardFree rider problemPrisoners' dilemmaTransaction costs

Given the situation, its a usual tendency for people buying insurance to behave carelessly as they…

A car insurance company will give a discount to safer drivers. To get the discount, the car insurance company uses a mobile app to monitor speed, acceleration, and cellphone use while driving. Driver with good behaviors will receive a discount on the premium. What problem is the insurance company trying to solve? Moral hazard Free rider problem Prisoners' dilemma Transaction costs

A car insurance company will give a discount to safer drivers. To get the discount, the car insurance company uses a mobile app to monitor speed, acceleration, and cellphone use while driving. Driver with good behaviors will receive a discount on the premium. What problem is the insurance company trying to solve? Moral hazard Free rider problem Prisoners' dilemma Transaction costs

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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An advertisement in the local paper offers a "fully loaded" car that is only six months old and has only been driven 5,000 miles at a price that is 20 percent lower than the average selling price of a brand new car with the same options. This low price is likely indicative of what type of situation? a) Adverse selection b)Moral hazard c) Winner's curse d) Perfect information
In Hayward, there are 100 people who want to sell their used cars. Everybody knows that 50 of these cars are "lemons" and 50 of these cars are "peaches." The problem is that nobody except the original owners know which are which. Owners of lemons will be happy to get rid of their cars for any price greater than $200. Owners of peaches will be willing to sell them for any price greater than $1,500 but will keep them if they can't get $1,500. There are a large number of buyers who would be willing to pay $2,500 for a peach but would pay only $300 for a lemon. When these buyers are not sure of the quality of the car they buy, they are willing to pay the expected value of the car, given the knowledge they have. If all 100 used cars in Hayward were for sale, how much would buyers be willing to pay for a used car? Type the number without the thousands separator or $ sign.
Whcih of the following could help overcome the problem of adverse selection in the used car market? Multiple Choice The buyer could have a mechanic inspect the car before buying it. The government could enact disclosure laws requiring that potential buyers be told all material facts about the condition of a vehicle for sale. The seller could include a warranty. all of the above
John wants to buy a used car. He knows that there are two types of car in the market, plums and lemons. Lemons are worse quality cars and are more likely to break down than plums. John is willing to pay £10, 000 for a plum and £2, 000 for a lemon. Unfortunately, however, he cannot distinguish between the two types. Sellers can offer a warranty that would cover the full cost of any repair needed by the car for y ∗ years. Considering the type and likelihood of problems their cars can have, owners of plums estimate that y years of guarantee would cost them 1000y, owners of lemons estimate that the cost would be 2000y. John knows these estimates and decides to offer £10, 000 if a car comes with y ∗ years of warranty, £2, 000 if a car comes without warranty. For which values of y ∗ is there a separating equilibrium where only owners of plums are willing to offer the y ∗ -years warranty? Clearly explain your reasoning.
The Tucker family has health insurance coverage that pays 80 percent of out-of-hospital expenses after a deductible of $1,000 per person. If one family member has doctor and prescription medication expenses of $2,200, what amount would the insurance company pay?
Federal 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 Egalitarianism
Moral hazard is consistent with the idea that when people have health insurance that protects against high medical expenses, they tend to get sick more often. seek less medical care. get sick less often. seek more medical care.
25. Which of the following is the best example of a moral hazard problem? Question 25 options: a) A borrower uses the proceeds of a business loan to gamble at a Las Vegas casino. b) A borrower decides to borrow at a fixed rather than a variable interest rate. c) A bank has difficulty in distinguishing between good and bad credit risks. d) A borrower makes all of her payments despite a downturn in her business.
If the provision of medical insurance encourages people to take more health risks because they know they can receive treatment, then health insurance Multiple Choice produces an asymmetric information problem. leads to a universal access problem. causes a defensive medicine problem. creates a moral hazard problem.
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
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?
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