This topic contains a solution. Click here to go to the answer

Author Question: How do adverse selection and moral hazard affect the market for insurance? What will be an ideal ... (Read 42 times)

rosent76

  • Hero Member
  • *****
  • Posts: 516
How do adverse selection and moral hazard affect the market for insurance?
 
  What will be an ideal response?

Question 2

In Problem 14, do firms enter or exit the market in the long run? What is the market price and the equilibrium quantity in the long run?
 
  What will be an ideal response?



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

Sierray

  • Sr. Member
  • ****
  • Posts: 343
Answer to Question 1

Both adverse selection and moral hazard drive up the price of insurance. People with a higher probability of the insurable outcome are the ones who buy the insurance (adverse selection), and having insurance increases the probability of the insurable outcome occurring because the person no longer tries as hard to avoid the outcome (moral hazard). Adverse selection and moral hazard may drive the price up so much that some people don't want to buy the insurance.

Answer to Question 2

The firms are incurring economic losses, so some firms exit the market. As firms exit the market, the market supply decreases so that in the long run the price rises to equal the minimum average total cost, 4.25 per smoothie. When the price is 4.25 for a smoothie, the equilibrium quantity is 550 smoothies per hour.




rosent76

  • Member
  • Posts: 516
Reply 2 on: Jun 29, 2018
Gracias!


lindahyatt42

  • Member
  • Posts: 322
Reply 3 on: Yesterday
Excellent

 

Did you know?

Most fungi that pathogenically affect humans live in soil. If a person is not healthy, has an open wound, or is immunocompromised, a fungal infection can be very aggressive.

Did you know?

A strange skin disease referred to as Morgellons has occurred in the southern United States and in California. Symptoms include slowly healing sores, joint pain, persistent fatigue, and a sensation of things crawling through the skin. Another symptom is strange-looking, threadlike extrusions coming out of the skin.

Did you know?

About 80% of major fungal systemic infections are due to Candida albicans. Another form, Candida peritonitis, occurs most often in postoperative patients. A rare disease, Candida meningitis, may follow leukemia, kidney transplant, other immunosuppressed factors, or when suffering from Candida septicemia.

Did you know?

Stroke kills people from all ethnic backgrounds, but the people at highest risk for fatal strokes are: black men, black women, Asian men, white men, and white women.

Did you know?

During the twentieth century, a variant of the metric system was used in Russia and France in which the base unit of mass was the tonne. Instead of kilograms, this system used millitonnes (mt).

For a complete list of videos, visit our video library