If a doctor knows that an insurance company will pay for most of a patient's bill, the doctor has more of an incentive to require additional medical procedures and tests, even if the patient may not require them. This is an example of O A. adverse selection. O B. the principal-agent problem. O C. asymmetric information. O D. moral hazard.

If a doctor knows that an insurance company will pay for most of a patient's bill, the doctor has more of an incentive to require additional medical procedures and tests, even if the patient may not require them. This is an example of O A. adverse selection. O B. the principal-agent problem. O C. asymmetric information. O D. moral hazard.

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Frontiers Of Microeconomics

Section: Chapter Questions

Problem 4PA

See similar textbooks

Similar questions

Why can't safe drivers get lower rates by telling insurance companies that they are less likely to have an accident? Select one: O a. because insurance companies don't want to cut rates for anyone O b. because unsafe drivers would make the same claim O c. because no one can really know if he or she is a safe driver O d. because accidents happen to everyone
An expected utility maximiser owns a car worth £60 000 and has a bank account with £20 000. The money in the bank is safe, but there is a 50% probability that the car will be stolen. The utility of wealth for the agent is u(y) = In(y) and they have no other assets. How much the individual would be willing to pay for a full car insurance, i.e., where the indemnity is equal to the value of the car? O a. At most £40 000. O b. At most £60 000. O c. At most £20000. O d. At most £30 000.
2. Suppose the equilibrium price for an average hospital stay in the absence of insurance is S10,000. At that price, 1000 people are hospitalized each year. Now suppose an insurer offers a policy to lower the out of pocket price of a stay to S100, and at that price, 1200 pcople are hospitalized. How much TOTAL premium revenue must be collected to finance this arrangement? HINT: you arc trying to brcak even here to get revenucs to match costs. You are given information that indicates cost. Now you need to consider revenues to balance that out. Keep in mind this is asking about premium revenue. There may be other revenue that you are receiving that you should consider when trying to calculate premium revenue to get to break even. a.
George Akerloff focused the market for used cars and discussed an issue later generally called the "lemons problem." A "lemon" is a low quality used car, with the seller but not the potential buyer aware of this. Since sellers have more information about the quality of the car: O moral hazard causes an inefficiently large number of transactions to occur. O moral hazard causes an inefficiently small number of transactions to occur. adverse selection causes an inefficiently small number of transactions to Occur. adverse selection causes an inefficiently large number of transactions to occur. 1 Previous Next »
Suppose your classmate Roby is faced with the following decision: they either receive $7,000 with certainty, or a 50-50 chance of receiving $3,500 or $10,500. Suppose Roby prefers the certain 57,000. True or False: Based on their preferences, Roby is not a risk averse person. O True O False Suppose there is a disease certain to impact exactly 5% of a population and that each member of the population is equally likely become infected, Treatment for individuals who are infected costs $32,000. Assume in this scenario that the necessary treatment for the disease is the only healthcare cost faced by this population. to pay the expected cost of healthcace with The expected cost of healthcare is If members of the population certainty, rather than take on the 5% risk of having to pay the full cost of the treatment, they are risk averse
An example of adverse selection is the ability of the insurance company to detect the riskiness of people. This results in some healthy people being unable to get insurance at a price they are willing to pay. O a. False O b. True a
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
Which of the following are examples of market signals? a. extracurricular activities O b. education c. All of these O d. warranties Market signals are O a. actions taken by buyers and sellers to communicate quality in the presence of perfect information. O b. only strong if obtaining the signal is more costly for individuals with valued traits than for those with non-valued traits. c. used to distinguish between high and low quality and help correct the adverse selection problem. O d. used to differentiate those who will drive equally carefully whether or not they have auto insurance from those who drive less carefully when they have insurance.
John is a 55-year-old male smoker, about 50 pounds overweight, who has high blood sugar and drinks to excess. Because of adverse selection in health insurance, Select one: O a. when John gets health insurance, he will be less likely to take care of himself. O b. if John doesn't have health insurance already, he will not be able to get it. O c. when John gets health insurance, he will be more likely to take care of himself. O d. John is more likely to buy health insurance than the average person since premiums are based on the average risk. O e. John is less likely to buy health insurance than the average personsince premiums are based on the average risk.
Insurance buyers have more information about whether they are high-risk or low-risk than the insurance company does. This creates an asymmetric information problem for the insurance company because buyers who are high-risk tend to want to buy more insurance, without letting the insurance company know about their higher risk. How might this problem impact an insurance company? F T O The company will not be impacted. O The insurance buyers, not the company, will be impacted. As high risk buyers submit claims, they will use up the company's funds for that year, and since the company did not adjust for these high risk claims, once that money is used up, remaining claimants won't receive any coverage. The company will be faced with heavy losses. The insurance company may decide not to sell insurance in this market at all or otherwise choose not to sell insurance to those they can identify as high risk. 106 # C 4 $ JUL 21 tv♫♬ % MacBook Pro Search or type URL + W D P N Ⓒ
What is the problem of moral hazard?
Why is there asymmetric information in the labor market? What signals can an employer look for that might indicate file traits they are seeking in a new employee?