Jack had an accident that caused a damage of $4,200 to his car. He had to pay $500 for repair while his insurer paid the remaining amount. Why do insurance companies have such policies?
What will be an ideal response?
Car insurance companies often do not pay the full cost of repair when the policy buyers have accidents. Such practices help in reducing the problem of moral hazard that may otherwise arise. If the insurers pay the full amount required for repair, drivers are more likely to drive recklessly and have accidents because they do not have to pay for the damage.
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What is an imperfectly competitive industry?
What will be an ideal response?
Although the relationship between output and the unemployment rate is not as simple as Okun's Law represents it to be, it is true that
A. a 1% increase in output tends to correspond to a greater than 1% decrease in the unemployment rate. B. a 1% increase in output will have no effect on the unemployment rate. C. a 1% increase in output tends to correspond to a less than 1% decrease in the unemployment rate. D. a 1% increase in output tends to correspond to a 1% decrease in the unemployment rate.