Which of the following would help an insurance company to overcome the adverse selectic problem? Ability to sort individuals into risk groups and charge different premiums A government requirement that people buy insurance Both of these

Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for poor quality used cars is $10,000. Assume a potential used car buyer has imperfect information as to the condition of any given used car. Assume this potential buyer believes the probability a given used car is good quality is .60 and the probability a given used car is low quality is .40. Assume the seller has perfect information on all cars in inventory. How does the informational imbalance result in market failure? a. Only good quality cars are sold, hence the market under-provides used cars. b. Both poor and good quality cars are sold, hence the market over-provides used cars. c. Only poor quality cars are sold, hence the market under-provides used cars. d. Both poor and good quality cars are sold, hence the market efficiently provides used cars.

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Which of the following statements is FALSE regarding the concept of "adverse selection"? Multiple Choice   Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss.   Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks.   The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers.   To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.

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.