Robert applied for health insurance but did not mention in the ...

[pepyto]

Robert applied for health insurance but did not mention in the application form that his family has a history of heart ailments that are considered to be hereditary. What will happen if several customers like Robert purchase the insurance?
 
  What will be an ideal response?

Question 2

A price ceiling leads to a(n) ________ if below equilibrium price.
 
  A) increase in social well-being
  B) increase in producer surplus
  C) decrease in market demand
  D) decrease in total surplus

[janeli]

Answer to Question 1

A person like Robert with a family history of heart ailments is more likely to fall ill. Insurance companies require higher premiums to cover the health expenses of such high-risk individuals, but if premiums are high, a person with a lower chance of falling ill will not buy the insurance. If several customers like Robert buy the insurance, the premium will continue to rise, forcing all low-risk individuals to stay out of the market. This is an example of adverse selection in the insurance market.

Answer to Question 2

D

[pepyto]

Excellent

[shewald78]

Gracias!