1. An article in the Economist observes: "Insurance companies often suspect the only people who buy insurance are the ones most likely to collect." What do economists call the problem that is described in the article? If insurance companies are correct in their suspicion, what are the consequences for the market for insurance? Use health insurance as an example.

1. An article in the Economist observes: "Insurance companies often suspect the only people who buy insurance are the ones most likely to collect." What do economists call the problem that is described in the article? If insurance companies are correct in their suspicion, what are the consequences for the market for insurance? Use health insurance as an example.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter9: The Basic Tools Of Finance

Section: Chapter Questions

Problem 5PA

See similar textbooks

Similar questions

Briefly explain what it means for information to be asymmetric. a. What is Moral Hazard? b. Identify and briefly explain three methods that insurance companies could use to off-set the moral hazard associated with their industry. c. What is Adverse Selection?
1. If the number of people with insurance increases, then what will most likely occur? a. a. a. a. a. The demand for health care will decrease. The demand for health care will increase. The demand for health care will be unaffected. There will be less preventive care. The amount of preventive care will be unaffected. 2.Requiring patients to pay a portion of the cost of the medical care they receive is designed to reduce the severity of a. a. a. a. a. moral hazard. diminishing returns. adverse selection. the principal-agent problem. market failure.
What is the opportunity cost of having health insurance? What is the opportunity cost of not having health insurance
a. Sketch a graph of what the insurance market equilibrium looks like if health status is public information and there are no regulations on prices other than the fact that the insurance market is perfectly competitive.
A noted insurance authority has said, “Because the financing of long-term care is inconsistent with insurance principles, it is a problem that does not lend itself to solution through insurance.” In what ways is the financing of long-term care inconsistent with insurance principles? What, in your opinion, is the solution to the problem of financing long-term care?
Is the decision to buy pet insurance strictly an economic decision? Explain.
What is the problem of moral hazard?
What would happen if, in order to provide lower cost health care, the government decided to set a price ceiling (Pmax) in the health insurance market? (Please answer questions a, b, and c below.) What is the effect of this maximum price legislation on the market for health insurance? Briefly explain the situation for both consumers and producers (i.e. health care providers). What might the government do to achieve their intended aims (i.e. lower costs and increased quantity)?
For each of the following kinds of insurance, give anexample of behavior that can be called moral /raumtand anotJ,cr example of behavior that can be calledadverse selection.a. health insuranceb. car insurancec. tile insurance
If the demand curve is steeper for particular health services the moral hazard is less ? True or false Explain briefly.
You read the following from an article on WebMD: "Spending on health care is out of control, and the reasons are that drug companies are exploiting their monopoly positions to raise prices, and doctors are ordering lots of unnecessary tests to protect themselves from lawsuits." What do you think about this quote? Select one: a. These reasons have nothing to do with spending on health care, which is driven mainly by government regulations. O b. It is probably true. Drug companies and doctors actually do those things. O c. It is probably false because drug companies are highly competitive and doctors don't care about lawsuits. O d. It is probably false. These actions could raise prices, but they won't necessarily raise spending.
Preventive care is not always cost-effective. Suppose that it costs $100 per person to administer a screening exam for a particular disease. Also suppose that if the screening exam finds the disease, the early detection given by the exam will avert $1,000 of costly future treatment. a. Imagine giving the screening test to 100 people. How much will it cost to give those 100 tests? Imagine a case in which 15 percent of those receiving the screening exam test positive. How much in future costly treatments will be averted? How much is saved by setting up a screening system? b. Imagine that everything is the same as in part a except that now only 5 percent of those receiving the screening exam test positive. In this case, how much in future costly treatments will be averted? How much is lost by setting up a screening system?