Abby buys health insurance because she knows that she has health risks that wouldn't be obvious to an insurance company. Brad buys home owners insurance and then is less careful to make sure he's put out his cigarettes. The example with Abby
a. and the example with Brad illustrate adverse selection.
b. and the example with Brad illustrate moral hazard.
c. illustrates adverse selection; the example with Brad illustrates moral hazard.
d. illustrates moral hazard; the example with Brad illustrates adverse selection.
c
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Real business cycle proponents would agree with all of the following except
a. the government's efforts to stabilize the economy can be counterproductive. b. unanticipated changes in the money supply are destabilizing to the economy. c. business cycles are a natural response to technology shocks. d. markets are perfectly competitive.
The equilibrium level of real GDP is $1,000 . the target level of real GDP is $1,250, and the marginal propensity to consume (MPC) is 0.60 . The target can be reached if government spending is:
a. increased by $60 billion. b. increased by $100 billion. c. increased by $250 billion. d. held constant.