Answer the following statement true (T) or false (F)

Question

1) The adverse selection problem is the tendency for insured drivers to drive recklessly.
2) The moral hazard problem is the tendency of some parties to a contract to alter their behavior
as a result of the contract in ways that are costly to the other party.
3) Professor Gullible agreed to cancel the final examination if students promised to study for it
anyway. The concept of moral hazard would predict that it is unlikely that students will study
for the exam.
4) Asymmetric information always results in adverse selection.
5) Insurance co-pays and deductibles are methods used by insurance companies to reduce
moral hazard.

Answer 1

1) F
2) T
3) T
4) F
5) T