Question : 12.2   Information Problems in Insurance Markets 1) The idea of an : 1226087

12.2   Information Problems in Insurance Markets

1) The idea of an insurance company “pooling” the risk means that

A) the risk is completely eliminated from society.

B) the insurance company requires buyers to pay a large deductible.

C) the risk is spread over a large population.

D) the insurance company insists on a pooling equilibrium.

E) moral hazard and adverse selection are eliminated.

2) In the auto insurance market, who is most likely to have private information that leads to adverse selection?

A) the government agency that regulates insurance companies

B) the insurance company

C) the drivers

D) the insurance company and the drivers

E) the government regulating agency and the insurance company

3) In the insurance market, private information

A) creates moral hazard but eliminates adverse selection.

B) creates adverse selection but eliminates moral hazard.

C) creates both moral hazard and adverse selection.

D) eliminates both moral hazard and adverse selection.

E) means that screening is unnecessary.

4) In the insurance market, moral hazard and adverse selection are the result of

A) poorly functioning markets.

B) government intervention.

C) private information.

D) treachery.

E) a separating equilibrium.

5) Moral hazard is

A) the tendency for people to enter into agreements in which they can use their private information to their own advantage and to the disadvantage of the less informed party.

B) when one of the parties to an agreement has an incentive after the agreement is made to act in a manner that brings additional benefits to himself or herself at the expense of the other party.

C) a situation in which only bad quality items are bought and sold.

D) absent after a person who dislikes risk buys insurance against the risk.

E) an action taken outside a market that conveys information that can be used by that market.

6) In an insurance market, moral hazard exists chiefly because of

A) economies of scale.

B) adverse selection.

C) diseconomies of scale.

D) private information.

E) public information.

7) Because Don has health insurance, he is more likely to see the doctor when he has a cold. This is an example of

A) adverse selection.

B) moral hazard.

C) the lemons problem.

D) both moral hazard and adverse selection.

E) private information.

8) If Sally drives less carefully after buying auto insurance, she illustrates

A) adverse selection.

B) negative selection.

C) screening risk.

D) moral hazard.

E) lemon hazard.

9) In the market for automobile insurance, moral hazard implies that

A) those who are insured might take greater risks.

B) those who are uninsured might take greater risks.

C) insured and uninsured alike will take greater risks.

D) screening will have no effect in the market.

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

10) Dan, age 19, may have trouble buying auto insurance at a low price because insurance companies

A) have private information that he is a risky driver.

B) have private information that his signals are valid.

C) fear that he has private information that his deductible is too high.

D) fear that he has private information that he is a risky driver.

E) operate in markets in which screening is inefficient.