Which of the following is true if the insurance market is efficient?
A)The deductibles eliminate moral hazard.
B)Society as a whole engages in less risky behavior.
C)It transfers risk from those who most want to get rid of it to those least bothered by the risk.
D)Premiums are always kept to the level of a fair insurance policy.

Question

Quizplus · Accepted Answer

An efficient insurance market transfers risk from those who are most risk-averse and want to get rid of it to those who are least bothered by the risk, such as insurers who are willing to take on risk in exchange for premiums. This results in a more efficient allocation of risk in the economy. Deductibles may help to reduce moral hazard, but they do not necessarily make the insurance market more efficient. Similarly, it is not necessarily true that society as a whole engages in less risky behavior in an efficient insurance market. Finally, premiums are determined by a number of factors, including the level of risk and the cost of providing coverage, and may not always be at the level of a "fair" insurance policy.

Which of the Following Is True If the Insurance Market