Answer to Question 1
Adverse selection occurs when one agent in a transaction knows about a hidden characteristic of a good and this information causes him or her to select in and out of markets. In health insurance markets, buyers have private information that sellers (health insurance companies) do not. Insurance companies would like to attract more low-risk individuals than high-risk individuals who are more likely to need expensive treatment. Since the company does not know how risky an individual is, it may charge higher premiums because it expects to attract many high-risk individuals, but then these higher premiums might discourage low-risk individuals from seeking health insurance. This leads to even higher premiums. In theory, insurance companies could end up charging such high premiums that no one except very high-risk people are insured. Therefore, adverse selection causes the market to shut down almost completely.
Answer to Question 2
A
A hypothetical scenario illustrating the process of chemical selection
A guinea pig being examined by a veterinary medical officer for general health and pulmonary conditi
The nurse needs to note the source of the patient health history
Health Assessment
Growth Chart for American Girls From Birth Through Age 3 Growth slows from infancy to toddlerhood b
Markets and Institutions Market Story Problem