Individuals with homeowner’s insurance tend to be more forgetful about locking their possessions safely before heading...
Individuals with homeowner’s insurance tend to be more forgetful about locking their possessions safely before heading out. This is an example of
| a. |
Adverse selection |
|
| b. |
Moral hazard |
|
| c. |
Screening |
|
| d. |
None of the above |
Homework Answers
"B"
This is an example of Moral hazard as people become more careless because they are covered by insurance.
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Individuals with homeowner’s insurance tend to be more forgetful
about locking their possessions safely before heading...
A health insurance company knows that there are two types of customers (smokers and non-smokers), each...
A health insurance company knows that there are two types of customers (smokers and non-smokers), each facing different health risks. The probabilities of getting sick and the healthcare costs in the case of illness for the two customer types is given in the table below. Group Healthcare costs Probability of getting sick Smokers $1200 50% Non-smokers $1200 20% Assume that each customer has a monthly income of $1600 and has a utility function given by U(x)=sqrt(x), where x is the...
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9. The strategy of reducing or eliminating risks by13. Tax taking a small share in many...
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c Date: Class (First Pagr) Date: Class (Subsrquent Pagrs) If you are risk avene a. You value a lohery a moee than is expected value. b You ike to uke gambles. c. A loaery is worth kess to you than iks expected vaue d You advertise your anihude twward risk. When farmers sell forward contracts in spring for the harvest they will reap in Autumn a. Their planting decisions are riskier due to increased uncertainy b They accrpt a price...
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1) A borrower who takes out a loan usually has better information about the potential returns...
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projects he plans to undertake than does the lender. This
inequality of information is called
A) moral hazard.
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1) A borrower who takes out a loan usually has better
information about the potential returns and risk of the investment
projects he plans to undertake than does the lender. This
inequality of information is called
A) moral hazard.
B) asymmetric information. C) noncollateralized risk. D)
adverse selection.
2) If bad credit risks are the ones who most actively seek
loans then financial intermediaries face the problem of
A) moral hazard.
B) adverse selection.
C) free-riding.
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