Question : 11) In the market for automobile insurance, adverse selection implies : 1241107

11) In the market for automobile insurance, adverse selection implies that

A) those who are insured might take greater risks.

B) those who are uninsured might take greater risks.

C) private information cannot be successfully screened.

D) insured and uninsured alike will take greater risks.

E) drivers with greater risks are more likely to buy insurance.

12) In the market for automobile insurance, adverse selection implies that

A) drivers with greater risks want to buy a policy without deductibles.

B) drivers with greater risks want to buy a policy with large deductibles.

C) uninsured drivers will drive recklessly.

D) insured drivers will drive recklessly.

E) moral hazard does not exist in this market.

13) Life insurance companies often give applicants a physical examination to prevent

A) moral hazard.

B) screening.

C) adverse selection.

D) signaling.

E) warranties.

14) Bill purchases property insurance for his office building, which includes coverage for fire damage. The policy offers premium discounts for smoke detectors, fire alarms, fire extinguishers and sprinkler systems. This is an incentive system to help avoid

A) adverse selection.

B) adverse signals.

C) moral hazard.

D) screening.

E) None of the above answers is correct.

15) “Screening” means that an auto insurance company is

A) enforcing a pooling equilibrium.

B) ignoring all private information.

C) creating an incentive to eliminate moral hazard even though it reinforces the possibility of adverse selection.

D) creating an incentive to eliminate adverse selection even though it reinforces the possibility of moral hazard.

E) creating an incentive for a risky driver to reveal that he or she is risky.

16) When an auto insurance company is screening, it is

A) ignoring the possibility of moral hazard in order to minimize adverse selection.

B) attempting to keep its private information private.

C) trying to determine if a driver is an aggressive driver or a safe driver.

D) making its private information public.

E) marketing its policies to customers.

17) Auto insurance companies charge a lower premium to drivers who carry a higher deductible because

A) insurance companies are not profit maximizers.

B) a driver’s riskiness increases as the driver’s deductible increases.

C) a high deductible signals a high risk.

D) insurance companies prefer that drivers carry no deductible.

E) a high deductible reveals that driver is a careful driver.

18) One way of screening in the automobile insurance market is for companies to

A) offer policies with different deductibles and different premiums.

B) insure only careful drivers.

C) insure only risky drivers.

D) eliminate policies with no-claim bonuses because these policies are usually not profitable.

E) offer warranties.

19) In the market for auto insurance, in a pooling equilibrium,

A) risky and safe drivers pay the same premium for insurance.

B) risky drivers pay a larger premium than do safe drivers for insurance.

C) risky drivers pay a smaller premium than do safe drivers for insurance.

D) risky drivers cannot obtain insurance.

E) safe drivers cannot obtain insurance.

20) In the market for auto insurance, in a separating equilibrium,

A) risky and safe drivers pay the same premium for insurance.

B) risky drivers pay a larger premium than do safe drivers for insurance.

C) risky drivers pay a smaller premium than do safe drivers for insurance.

D) risky drivers cannot obtain insurance.

E) safe drivers cannot obtain insurance.