Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Question
Chapter 8, Problem 10P
To determine
(a)
To state:
The reason an insurer can know something valuable about the seriousness of the moral hazard problem if the policyholder is willing to pay a large deductible amount on policy.
To determine
(b)
To state:
The reason for if a car insurance excluding the insurance of car for commercial use can reduce moral hazards.
To determine
(c)
To state:
The reason behind insurance of a vehicle based on the driving distance helps reduce moral hazards.
To determine
(d)
To state:
The reason behind a vehicle using GPS monitor recording the location and speed can help reduce the hazard problem.
Expert Solution & Answer
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Students have asked these similar questions
a. 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?
Which of the following is an example of moral hazard?
Group of answer choices
A. Reckless drivers are the ones most likely to buy automobile insurance.
b. Retail stores located in high-crime areas tend to buy theft insurance more often than stores located in low-crime areas.
C. Drivers who have many accidents prefer to buy cars with air bags.
D. Employees recently covered by the company health plan start going to the doctor every time they get a cold.
E. Company divisions try to improve profitability at each other's expense.
1)Describe an example of moral hazard that we may run into in the real world. Think of something that is legal and not inherently lethal, yet still demonstrates elevated risk for the participant who would likely act safer if insurance or protection was not available.
Explain why someone might take this risky action. What are the benefits to the risky behavior?
In your response to two of your peers, explain what an insurance company may do to reduce the likelihood that an individual would take this risk. Keep in mind, that we cannot always just deny coverage if an individual is participating in the risky behavior.
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- Many 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_forwardTyped plz and asap thanksarrow_forwardDon't use ai to answer I will report your answer Solve it Asap with explanation and calculationarrow_forward
- Don't use pen or paperarrow_forwardGeorge Akerloff focused the market for used cars and discussed an issue later generally called the "lemons problem." A "lemon" is a low quality used car, with the seller but not the potential buyer aware of this. Since sellers have more information about the quality of the car: a. adverse selection causes an inefficiently large number of transactions to occur. b. moral hazard causes an inefficiently large number of transactions to occur. c. moral hazard causes an inefficiently small number of transactions to occur. d. adverse selection causes an inefficiently small number of transactions to occur.arrow_forward1. When an auto insurance company is screening, it is A. attempting to keep its private information private. B. marketing its policies to customers. C. ignoring the possibility of moral hazard in order to minimize adverse selection. D. trying to determine if a driver is an aggressive driver or a safe driver. E. making its private information public. 2. In the market for health care services, Health Maintenance Organizations A. help overcome adverse selection by enrolling only healthy clients. B. exist to insure people with preexisting medical conditions. C. overprovide medical care and thereby result in increased costs. D. help overcome moral hazard by monitoring the quality of the service. E. None of the above answers are correct 3. Moral hazard in the market for healthcare services leads Question content area bottom Part 1 A. to providers over treating patients.. B. to healthy people not buying health insurance. C. patients to adopt healthy life styles. D. to all…arrow_forward
- Empirical evidence suggests that state laws mandating health insurance coverage for alcoholism treatment leads to moral hazard on the part of the insured population. Given this information, what are you most likely to observe in a state that has passed such a law? A. Less use of alcohol treatment facilities B. Lower rates of drunk driving C. Higher rates of alcoholism D. Lower sales of alcoholarrow_forwardBriefly explain what it means for information to be asymmetric. a. What is Moral Hazard? b. Identify and briefly explain three methods that insurance companies could use to off-set the moral hazard associated with their industry. c. What is Adverse Selection?arrow_forwardBonnie regularly lets her boyfriend drive her car whenever they go on a date. Yesterday, he caused an accident driving Bonnie’s car. Will Bonnie’s insurance company cover the accident? a. No, because insurance is always waived when a car is used by a unlisted driver. b. Yes, because PAP coverage follows the car. c. No, because her insurance company will claim that the boyfriend should have been listed as a regular driver of the car. D.Yes, because Bonnie was present when the accident happened.arrow_forward
- Why is it important to carry auto insurance? O To protect against the risk of a natural disaster O To protect against the risk of serious illness O To protect against the risk of a car accident O To protect against the risk of income lossarrow_forwardWhat is the problem of moral hazard?arrow_forwardPrivate markets may underallocate resources to a good or service that is affected by the moral hazard problem because the sellers of the product will not be able to Multiple Choice A. tell which specific buyers may be affected by moral hazard. B. know the degree to which moral hazard may lead any specific buyer to engage in costly behavior. C. both A and B. D. neither A nor B.arrow_forward
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