The government requires that every driver have some form of car insurance to address the problem of:
A)moral hazard.
B)illegal screening.
C)adverse selection.
D)statistical discrimination.

Question

Quizplus · Accepted Answer

The requirement for every driver to have car insurance is primarily to address the problem of adverse selection. Adverse selection occurs when there is asymmetric information between buyers and sellers, leading to a situation where those most likely to need insurance (e.g., risky drivers) are more inclined to buy it, potentially driving up costs and making it unaffordable or unattractive for safer drivers. Mandatory insurance helps to mitigate this issue by ensuring that all drivers, regardless of their risk level, contribute to the insurance pool, thus spreading out the risk.

The Government Requires That Every Driver Have Some Form of Car