In the market for automobile insurance,asymmetric information occurs when
A) insured drivers drive more safely than uninsured drivers.
B) insured drivers drive more recklessly than uninsured drivers.
C) drivers with greater risk purchase more automobile insurance.
D) automobile insurance is universal.

Question

Quizplus · Accepted Answer

Asymmetric information in the context of automobile insurance occurs when one party (in this case, the drivers) has more or better information than the other party (the insurance company). Choice C is correct because it describes a situation where drivers who are aware of their higher risk (due to their driving habits, history, or other factors) opt to purchase more insurance, while the insurance company may not have access to this detailed personal information, leading to a mismatch in information between the two parties.

In the Market for Automobile Insurance,asymmetric Information Occurs When