Question 1

The government could reduce adverse selection due to buyer-held private information by

Accepted Answer

Requiring everyone to buy insurance is a form of mandated insurance, which reduces adverse selection by forcing individuals with both high and low risks to purchase insurance. This, in turn, increases the pool of insured individuals and, consequently, decreases the average risk of the insured population.

Question 2

When the government subsidizes the cost of health insurance

Accepted Answer

When the government subsidizes the cost of health insurance, it becomes more affordable for people to buy insurance. This generally leads to more people purchasing insurance, which spreads the risk across a larger population and decreases adverse selection.

Question 3

Who is least likely to buy health insurance when individuals have private information about their health and health insurance is optional?

Accepted Answer

A young adult in good health is least likely to buy health insurance because they may perceive themselves as invincible and not in need of medical care. They may also want to save money and not see the immediate value in paying for health insurance. The other options may be more likely to buy health insurance due to potential health issues and risks.

Question 4

What can an insurance company do to reduce adverse selection due to buyers holding private information?

Accepted Answer

By gathering information on buyers that is related to their cost to the insurance company and can be used to set premiums, insurance companies can more accurately price their products and reduce adverse selection due to buyers holding private information. This can help to encourage healthier and lower-risk individuals to purchase insurance, rather than only those who are at a higher risk of needing medical care. Options B and C do not necessarily address adverse selection, and option D is not within the control of the insurance company.

Question 5

You are a government policymaker with the responsibility to propose a policy that will reduce adverse selection in the health insurance market. Which of the following policies would achieve that goal?

Accepted Answer

Subsidizing the cost of health insurance would make it more affordable for individuals to purchase coverage, thereby increasing the size of the insurance pool and reducing adverse selection. This policy would also help to redistribute the cost of healthcare to healthier individuals, who might otherwise choose to go uninsured. Options A, C, and D do not address the underlying causes of adverse selection in the market.

Question 6

Which of the following is NOT used by auto insurers to assess your cost to them as a policyholder?

Accepted Answer

Height is not a factor that is considered by auto insurers when assessing the cost of a policy. Age, type of vehicle, and driving record are commonly used factors.

Question 7

If you think you're a low-cost customer who is unlikely to need to file a claim, you'll often get a much better deal if you choose the insurance plan that

Accepted Answer

Insurance plans with high deductibles typically have lower premiums because the insured assumes more risk. This makes them a good option for individuals who may not need to file a claim and are looking for a low-cost option. Choosing a plan with a high deductible can also encourage individuals to be more cautious with their assets, which decreases the likelihood of filing a claim.

Question 8

How is health insurance usually paid for when the government provides it?

Accepted Answer

When the government provides health insurance, it is usually paid for through taxes. This allows everyone to contribute to the cost of healthcare and ensures that all citizens have access to affordable coverage.

Question 9

Which of the following does NOT cause adverse selection?

Accepted Answer

Price-related private information is not a cause of adverse selection. Adverse selection occurs when one party in a transaction has more information than the other, leading to an uneven distribution of risk. Choices A, B, and C all describe situations where one party has private information that could lead to adverse selection.

Question 10

The actions you take because your actions are not fully observable and you are partially insulated from their consequences are referred to as

Accepted Answer

This scenario describes moral hazard, which occurs when one party takes more risks because they are not fully responsible for the consequences of their actions. For example, if someone has insurance for their car, they may be more likely to drive recklessly because they know they will not bear the full cost of any accidents.

Question 11

Moral hazard refers to the

Accepted Answer

Moral hazard refers to the possibility that people may take greater risks or act in less responsible ways because they are protected from the full consequences of their actions. This protection can come from insurance, government bailouts, or other forms of risk sharing. Moral hazard can arise when people know that someone else will bear the costs of their actions, either entirely or in part. This can lead to actions that are riskier or less responsible than they would otherwise be.

Question 12

Jane builds her home in an area that is at high risk for flooding, instead of on higher ground. She does so because the low-lying area has a better view and she can get flood insurance. This is an example of

Accepted Answer

This is an example of moral hazard because Jane's decision to build in a high-risk area is influenced by the availability of flood insurance, which reduces the financial risk to her personally. This insurance availability changes her behavior, leading her to take a risk she might not otherwise take if she had to bear the full cost of potential flooding.

Question 13

Which of the following is an example of moral hazard?

Accepted Answer

Moral hazard refers to a situation in which an individual or entity takes on greater risks than they would otherwise take because they will not bear the full cost of those risks. In this scenario, Jane is building her home on high-risk land because she knows she can get flood insurance to cover any damages that may result from flooding. This demonstrates moral hazard, as Jane is not fully bearing the risk of building on high-risk land, and may be taking on more risk than she would if she did not have insurance.

Question 14

Moral hazard is consistent with the idea that when people have health insurance that protects against high medical expenses, they tend to

Accepted Answer

Moral hazard suggests that individuals may take more risks or behave differently when they are protected against the consequences of their actions. In the case of health insurance, individuals may seek more medical care or treatment than they otherwise might because they are not bearing the full cost of those services. This can lead to increased healthcare utilization and higher overall costs for the insurer.

Question 15

_____ is consistent with the idea that people with health insurance that protects against high medical expenses will seek more medical care than those without health insurance.

Accepted Answer

Moral hazard refers to the behavior of individuals who have insurance and whose behavior changes as a result of the insurance, leading to increased utilization of healthcare services. In this case, individuals with health insurance may seek more medical care because they are protected from high medical expenses, leading to increased healthcare utilization.

Question 16

Which of the following statements is consistent with moral hazard?

Accepted Answer

Moral hazard refers to the tendency for individuals to take on more risk when they are protected from the consequences of their actions. In the case of health insurance, if individuals have more coverage, they may be more likely to seek medical care because they do not bear the full cost of that care. Therefore, choice A - "The more coverage a health insurance policy provides, the more often medical care will be sought" - is consistent with moral hazard.

Question 17

Moral hazard becomes a greater problem to an insurer when customers

Accepted Answer

Moral hazard occurs when customers take more risks or act in fraudulent ways because they know the insurer will bear the financial burden. This becomes a greater problem when customers can take actions that are not observable by the insurer, as the insurer cannot monitor or prevent these actions, leading to more potential losses. Choices A, C, and D do not necessarily increase moral hazard.

Question 18

Which of the following is an example of moral hazard?

Accepted Answer

Moral hazard refers to the tendency for individuals to take more risks or engage in more risky behavior when they are protected by insurance. In this case, Jose is going to the doctor more often than he would have without health insurance, which is an example of moral hazard. Choices A, B, and D do not involve taking on more risk due to insurance protection.

Question 19

When you have health insurance, your marginal benefit of a visit to the doctor's office is _____, and your marginal cost is _____.

Accepted Answer

With health insurance, the marginal benefit of a doctor's visit remains unchanged because the benefit is related to the health improvement from the visit. However, the marginal cost is lower because insurance covers part of the cost, reducing the out-of-pocket expense for the patient.

Question 20

When you have health insurance, you tend to seek medical care more often because

Accepted Answer

When one has health insurance, the cost of seeking medical care is usually covered or subsidized, making the cost-benefit analysis more beneficial. As a result, people tend to seek medical care more often.

Quiz 20: Decisions With Private Information

The government could reduce adverse selection due to buyer-held private information by

When the government subsidizes the cost of health insurance

Who is least likely to buy health insurance when individuals have private information about their health and health insurance is optional?

What can an insurance company do to reduce adverse selection due to buyers holding private information?

You are a government policymaker with the responsibility to propose a policy that will reduce adverse selection in the health insurance market. Which of the following policies would achieve that goal?

Which of the following is NOT used by auto insurers to assess your cost to them as a policyholder?

If you think you're a low-cost customer who is unlikely to need to file a claim, you'll often get a much better deal if you choose the insurance plan that

How is health insurance usually paid for when the government provides it?

Which of the following does NOT cause adverse selection?

The actions you take because your actions are not fully observable and you are partially insulated from their consequences are referred to as

Moral hazard refers to the

Jane builds her home in an area that is at high risk for flooding, instead of on higher ground. She does so because the low-lying area has a better view and she can get flood insurance. This is an example of

Which of the following is an example of moral hazard?

Moral hazard is consistent with the idea that when people have health insurance that protects against high medical expenses, they tend to

_____ is consistent with the idea that people with health insurance that protects against high medical expenses will seek more medical care than those without health insurance.

Which of the following statements is consistent with moral hazard?

Moral hazard becomes a greater problem to an insurer when customers

Which of the following is an example of moral hazard?

When you have health insurance, your marginal benefit of a visit to the doctor's office is _, and your marginal cost is _.

When you have health insurance, you tend to seek medical care more often because