Explain the problem of adverse selection. Discuss ways health insurance companies have tried to overcome this problem
Please provide the best answer for the statement.
The adverse selection problem is an information problem that arises between buyer and seller. Buyers of a product who have the largest potential to benefit or to impose costs on a seller are also the ones most likely to enter into a contract with a seller, although the seller does not know this information ahead of time. In insurance purchases, for example, the people most likely to receive a payout from insurance are the very ones most likely to purchase insurance, but information about high-risk buyers is not known ahead of time by the seller. This adverse selection problem may result in losses that reduce the number of sellers in a private insurance market.
In the market for health insurance, insurance companies often ask customers a set of questions so they are able to better understand their need for health care services in the future. Questions may include whether the customer is a smoker or if they have any preexisting conditions. The insurance company may also require the customer to obtain a physical or some other form of a doctor check-up.
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Speculators who believe the world-wide demand for cocoa products is going to increase enormously next year will cause
A) less cocoa to be consumed next year. B) less cocoa to be consumed this year. C) less cocoa to be produced next year. D) less cocoa to be produced this year. E) none of the above since speculation only affects price.
Using "chain-weighted" prices to calculate real GDP remedies the distortions causes by changes in relative prices over time
Indicate whether the statement is true or false
In a partnership, debts accumulated by one partner are
A) the responsibility of that partner only. B) the responsibility of that partner plus any partners who are actively involved in running the partnership. C) the responsibility of all of the other partners for the full amount of the debt. D) the responsibility of all of the other partners, up to the total value of the firm.
If resources and goods are free to move across states and if Oregon producers choose to specialize in producing honey while California producers choose to specialize in growing almonds, then we could reasonable conclude that:
a. California has a comparative advantage in producing almonds b. Oregon has a comparative advantage in producing honey. c. the opportunity cost of growing almonds is lower in California than in Oregon. d. all of the above are true.