Define moral hazard.

Define the term Aggregating Risk over time?

Suppose that there is asymmetric information in the market for used cars. Sellers know the quality of the car that they are selling, but buyers do not. Buyers know that there is a 30% chance of getting a "lemon", a low quality used car. A high quality used car is worth $30,000, and a low quality used car is worth $15.000. Based on this probability, the most that a buyer would be willing to pay for a used car is S. (Enter your response rounded to the nearest dollar.)

“Too big to fail” was a common buzz phrase during the Great Recession. The idea behind it is that certain businesses are so important to an economy that disastrous consequences would result if they were allowed to fail and so government intervention is necessary. How is the concept of moral hazard relevant here?   Please explian the reasoning

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.

Suppose that every driver faces a 2% probability of an automobile accident every year. An accident will, on average, cost each driver $14,000. Suppose there are two types of individuals: those with $112,000.00 in the bank and those with $3,500.00 in the bank. Assume that individuals with $3,500.00 in the bank declare bankruptcy if they get in an accident. In bankruptcy, creditors receive only what individuals have in the bank. Assume that both types of individuals are only slightly risk averse. In this scenario, the actuarially fair price of full insurance, in which all damages are paid by the insurance company, is .   Assume that the price of insurance is set at the actuarially fair price. At this price, drivers with $112,000.00 in the bank likely    buy insurance, and those with $3,500.00 in the bank likely    buy insurance. (Hint: For each type of driver, compare the price of insurance to the expected cost without insurance.)   Suppose a state law has been passed…

High deductible plans in the U.S. reduce adverse selection.  True  False

Which of the following is NOT an example of moral hazard? an insured person not using preventive care, because he/she is insured against illness an uninsured patient incessantly visiting his doctor because he always thinks he is getting sick an insured person buying prescription shampoo because it covered an insured person getting their teeth whitened because it is covered

3.

The Australian health sector suffers from informational asymmetry problems pertaining to ‘moral hazard’ and ‘adverse selection’. Please provide a reason for why you either agree or disagree with the statement.