Jack had an accident that caused a damage of $4,200 to his car. He had to pay $500 for repair while his insurer paid the remaining amount. Why do insurance companies have such policies?
What will be an ideal response?
Car insurance companies often do not pay the full cost of repair when the policy buyers have accidents. Such practices help in reducing the problem of moral hazard that may otherwise arise. If the insurers pay the full amount required for repair, drivers are more likely to drive recklessly and have accidents because they do not have to pay for the damage.
You might also like to view...
Suppose that a sporting goods store had $800 of golf balls on its shelves at the beginning of 2016 and $1,300 at the end of 2016. The amount of inventory investment included in GDP would be
A) $500. B) $800. C) $1,300. D) $2,100.
Exports from and imports to the U.S. were important to growth in the U.S. between 1790 and 1860 because
(a) exports to other countries expanded the market base for U.S. manufacturing goods. (b) they supported the U.S. economy during a time in which it used more agricultural goods and crude materials than it produced. (c) they helped the U.S. and its trading partners gain wealth through international trade of those goods and services in which each produced at a comparative advantage. (d) they contributed to all of the above.
An escalation or automatic adjustment provision in a purchase contract for some good deters opportunistic behavior and automatically reallocates risk as its price changes
Indicate whether the statement is true or false
What are the main features of the Sherman Act?
What will be an ideal response?