Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 4.A, Problem 1ARQ
To determine
Why do people drive faster when they have auto insurance.
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Students have asked these similar questions
A group of 200 people seek out an insurance company to underwrite health insurance for its members. It expected
medical spending for the group is $1,200,000, what will the average premium bn If the health insurance company
adds a leading fee of 20 percent?
$14,400
$12,000
O $7,200
O $6,000
6. Suppose that there are two types of drivers: reckless and safe. Reckless drivers
have a higher probability of accidents with an expected loss to the insurance
company of $5000. Safe drivers have a lower probability of accidents with an
expected loss to the insurance company of $1000. Insurer cannot distinguish
between reckless and safe drivers but know that reckless drivers make up "B"
proportion of all drivers. What single premium should the risk-neutral insurer
charge? Assume that the insurance market is perfectly competitive. Is the above
mentioned problem an example of Adverse Selection or Moral Hazard? Explain.
6. Answer which happens, moral hazard or adverse selection, or nothing happens under each of
the following situations.
[M20]: A driver drives a car rough because s/he has a property insurance of a car.
b. Adverse selection
[M21]: Since a driver cannot distinguish among qualities of cars, s/he may buy a bad one.
a. Moral hazard
c. nothing
a. Moral hazard
b. Adverse selection
c. nothing
[M22]: Banks look for lenders, but most customers who apply for loans seem to have
difficulty repaying them even in assuming they make an identical effort.
a. Moral hazard
b. Adverse selection
c. nothing
Chapter 4 Solutions
Economics (Irwin Economics)
Ch. 4.A - Prob. 1ADQCh. 4.A - Prob. 2ADQCh. 4.A - Prob. 3ADQCh. 4.A - Prob. 1ARQCh. 4.A - Prob. 2ARQCh. 4.A - Prob. 3ARQCh. 4.A - Prob. 1APCh. 4 - Prob. 1DQCh. 4 - Prob. 2DQCh. 4 - Prob. 3DQ
Ch. 4 - Prob. 4DQCh. 4 - Prob. 5DQCh. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - Prob. 9DQCh. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5PCh. 4 - Prob. 6PCh. 4 - Prob. 7P
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