What are the main differences between adverse selection and moral hazard in the insurance market?

What will be an ideal response?


Adverse selection describes who is most likely to acquire insurance. It predicts that those who need insurance the most (because they face the most risks) will acquire insurance, driving up insurance rates for everyone, leading the lower-risk customers to drop out of the market. Moral hazard describes how people behave once they have insurance, predicting that people will increase their risk-taking after acquiring insurance.

Economics

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Which of the following is true of a first-price sealed-bid auction?

A) Bidders directly compete with each other. B) Bidders place their bids simultaneously. C) Bidders know each other's bids. D) Bidders always bid below their willingness to pay.

Economics

An "omitted variable" is

A) a variable that has no impact on other variables in an economic analysis. B) a variable which is purposely omitted from an economic analysis. C) a variable that affects other variables and its omission from economic analysis can lead to false conclusions about cause and effect. D) a variable which is inadvertently omitted from an economic analysis.

Economics

An increase in government spending that is not financed by an increase in taxes will cause which of the following?

A) an increase in interest rates and an increase in planned investment B) an increase in interest rates and a reduction in planned investment C) a reduction in interest rates and an increase in planned investment D) a reduction in interest rates and a reduction in planned investment

Economics

The table below shows cost data for a firm that is selling in a purely competitive market.OutputAverage Variable CostAverage Total CostMarginal Cost10$5.00$15.00$3124.0013.004144.7511.506165.759.009209.0012.0014Refer to the above cost chart. The lowest output level on this firm's short-run supply curve is:

A. 16. B. 10. C. 12. D. 20.

Economics