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.
You might also like to view...
Describe the Taylor rule. If the Fed were following the rule, what would the nominal Fed funds rate be if inflation over the past year were 4% and output were 1% below its full-employment level?
What will be an ideal response?
In reference to industrial policy, networks of interdependent firms, universities, and businesses that focus on production of a specific type of good are called:
A. vertical industries. B. integrated industries. C. bundles. D. clusters.
The four main tools of monetary policy are:
A. tax rate changes, the discount rate, open-market operations, and the federal funds rate. B. tax rate changes, changes in government expenditures, open-market operations, and interest on reserves. C. the discount rate, the reserve ratio, interest on reserves, and open-market operations. D. changes in government expenditures, the reserve ratio, the federal funds rate, and the discount rate.
During 2016, Tony's assets equal $300,000 and his net worth is $50,000. Tony's liabilities are
A. $50,000. B. $150,000. C. $200,000. D. $250,000.