Insurance companies charge annual premiums to collect revenue, which they then use to pay customers who file claims for damages they incur. As a result of the moral hazard problem (1) what is the effect on the percentage of policy holders making claims, and (2) what is the effect on the average premium charged when compared to a world with no moral hazard problem?
a. The percentage of policy holders making claims is higher; average annual premiums are lower.
b. The percentage of policy holders making claims is lower; average annual premiums are lower.
c. The percentage of policy holders making claims is higher; average annual premiums are higher.
d. The percentage of policy holders making claims is lower; average annual premiums are higher.
c
You might also like to view...
Suppose that the U.S. government acquires more foreign currency. This change is entered into which of the balance of payments accounts?
A) current account B) capital and financial account C) official settlements account D) reserves account E) trade account
Public finance economists should only concern themselves with positive economic analysis
a. True b. False
One school of anti-trust thought argues that, rather than ensuring efficiency, anti-trust laws are really aimed at
A) protecting small independent firms against large corporations. B) outlawing all monopolies whether they perform "bad acts" or not. C) price differentiation due to differences in quality and cost. D) restricting interlocking directorates.
A tax where the percentage of income paid in taxes is the same regardless of the size of the income is a:
A. proportional tax. B. regressive tax. C. progressive tax. D. sales tax.