Question : 11) If a buyer in an economic transaction has more : 1245122

11) If a buyer in an economic transaction has more information than the seller, the buyer benefits at the expense of the seller. This phenomenon is due to

A) moral hazard.

B) adverse selection.

C) economically irrational behavior.

D) gains from trade.

12) If a state requires all drivers to purchase auto insurance, insurance companies still face the problem of

A) correctly pricing their insurance.

B) sunk costs.

C) adverse selection.

D) excess demand for their insurance.

13) Which of the following is not an advantage of risk pooling?

A) By insuring large groups as opposed to individuals, health insurance providers reduce adverse selection.

B) It gives very sick people in the group the same access to health care and to pay the same premiums as healthy individuals.

C) It is easier for an insurance company to estimate the average number of claims likely to be filed under a group policy than it is to predict the number of claims likely to be filed under an individual policy.

D) Individuals who are insured and therefore do not have to pay the full cost of health care services may be inclined to over-use those services.

14) The Pre-Existing Condition Insurance Plan is a federally administered part of the Affordable Care Act, and is designed for people with pre-existing medical conditions to obtain insurance. By offering health insurance to all U.S. citizens with pre-existing medical conditions, the Pre-Existing Condition Insurance Plan eliminates ________ for both the insurer and the insured, and eliminates ________ for the issuer of the insurance policy.

A) the principal-agent problem; moral hazard

B) asymmetric information; adverse selection

C) adverse selection; the principal-agent problem

D) moral hazard; adverse selection

15) When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of

A) moral hazard.

B) adverse selection.

C) asymmetric information.

D) economic irrationality.

16) Which of the following individuals is most likely to purchase a life insurance policy that pays out an annual income beginning at a certain age until the individual’s death?

A) Ian, who expects to have a short life expectancy because of an illness

B) Bradley who has six young children

C) Avril, a tax attorney who wants to avoid adverse selection

D) Alma, who expects to live a long life, based on her family history

17) One reason why adverse selection problems arise in health insurance markets is that

A) sick people are more likely to want health insurance than healthy people.

B) because of advances in medical technology, people are living longer. These medical advances are costly and drive up the price of insurance for everyone.

C) the average age of citizens of the United States has increased in recent years, and will continue to increase over the next 20 to 30 years. As older citizens retire, more and more of their medical bills will have to be paid by younger workers.

D) fewer men and women are choosing medical careers because of the increase in the cost of malpractice insurance.

18) The cost of group health insurance is lower than if an individual buys a policy on his own because

A) the problem of adverse selection is reduced.

B) moral hazard costs of a group tend to move to a low average.

C) it is easier for the company to deny claims from a large group.

D) insuring a group eliminates the problem of buyers having more information than the seller.

19) Which of the following is not an advantage to an insurance company of insuring a large group of people for health insurance?

A) The characteristics of a large group are likely to reflect those of the entire population.

B) It is easier to accurately predict the number of claims for a group than for an individual.

C) When all group members pay the premium, the problem of moral hazard is reduced.

D) When all group members pay the premium, the problem of adverse selection is reduced.

20) What is moral hazard?

A) It refers to the private, self-interested actions that people pursue, which when taken collectively leads to a loss in economic surplus.

B) It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off.

C) It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.

D) It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction.