EXPLORING ECONOMICS
8th Edition
ISBN: 2818000015614
Author: Sexton
Publisher: SAGE
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Chapter 17, Problem 25P
To determine
To explain:
The reason for adverse selection and moral hazard not likely to be successful commercially.
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What is moral hazard?
If you sell your DVD player on eBay you will be better informed about the quality of the product than any potential buyer. This is called
A) adverse selection.
B) asymmetric information.
C) moral hazard.
D) opportunistic behavior.
Chapter 17 Solutions
EXPLORING ECONOMICS
Ch. 17 - Prob. 1PCh. 17 - Prob. 2PCh. 17 - Prob. 3PCh. 17 - Prob. 4PCh. 17 - Prob. 5PCh. 17 - Prob. 6PCh. 17 - Prob. 7PCh. 17 - Prob. 8PCh. 17 - Prob. 9PCh. 17 - Prob. 10P
Ch. 17 - Prob. 11PCh. 17 - Prob. 12PCh. 17 - Prob. 13PCh. 17 - Prob. 14PCh. 17 - Prob. 15PCh. 17 - Prob. 16PCh. 17 - Prob. 17PCh. 17 - Prob. 18PCh. 17 - Prob. 19PCh. 17 - Prob. 20PCh. 17 - Prob. 21PCh. 17 - Prob. 22PCh. 17 - Prob. 23PCh. 17 - Prob. 24PCh. 17 - Prob. 25PCh. 17 - Prob. 26PCh. 17 - Prob. 27PCh. 17 - Prob. 28P
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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?arrow_forwardSuppose there are only two kind of cars in the market for used cars: lemons and good cars. A lemon is worth $1,000 both to its current owner and to anyone who buys it. A good car is worth $8,000 to its current and potential owners. Buyers can't tell whether a car is a lemon until after they have bought the car, and there is no warranty. What is the prevailing price of a used car? $8,000 $4,500 $1,000 The prevailing price depends on how many lemons and how many good cars are traded.arrow_forwardIf people get higher pay for insurance than their premium will this increase or decrease the death rate of average persons? Is this an example of a moral hazard or harvest selection. How will an insurance company deal with this problemarrow_forward
- How does asymmetric information about consumer types affect market outcomes in a scenario where sellers cannot perfectly distinguish between high-value and low-value customers?arrow_forwardIf people get higher pay from their insurance than their premiums, will this increase or decrease the death rate of average person? Is this example of moral hazard or adverse selection? How will the insurance company deal with this problem ?arrow_forwardDescribe information imperfection and its role in market failure. Do consumers possess perfect acknowledge regarding their health status and the treatment options available to them?arrow_forward
- You have a prescription drug insurance plan with a $500 deductible, 25% coinsurance after the deductible, and an out of pocket maximum of $1,250. What would you owe in cost sharing if you had $2,075 of prescription drug claims during the year?arrow_forwardHow does the problem of moral hazard affect the safety of sports such as football and boxing when safety regulations started requiring that players wear more padding?arrow_forwardEconomics Use the following information to determine the costs to you and/or to the insurance company for the following occurrences:1) You have $500 per person Wellness Benefit.2) You have a $500 İndividual Deductible and your family (spouse and children) has a $500 Family Deductible.3) You have a $10,000 annual Maximum Family Out-of- Pocket expense provision.4) Once you have met your Individual or Family Deductible, your insurance will pay 80% of the expenses and you will pay 20% as your co-pay.Unless the occurrence is a Wellness expense, you and/or your family have to meet their deductibles first before insurance will pay anything. Example:Assume that you have met your deductible, and you go to the Emergency Room for a large cut on your shin which required cleaning, 20 stitches, a tetanus shot, and antibiotics. (80/20 plan)Total Charges = $2,500 totalYour Responsibility = $2,500*.20 = $500 (goes toward your Max Out of Pocket)Insurance Responsibility = $2,500*.80 = $2,000 Question:…arrow_forward
- Someone indicated that employee’s absence from work despite meeting the eight hours per day requirement affect productivity and increase cost of business. If an employee makes up the hours by coming early and leaving late, how can you call it an example of moral hazard when the manager can easily correct this behavior? Please explain to the class.arrow_forwardMany people in the property and liability insurance industry complain about the “automobile problem.” The “automobile problem” consists of a series of interrelated problems. What factors have combined to produce a problem in the automobile insurance area?arrow_forwarda. If a pay-as-you-drive insurance program is being implemented to cope with automobile-related externalities associated with driving, what factors should be considered in setting the premium? b. Would you expect a private insurance company to take all these factors into account? Why or why not?arrow_forward
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