The problem of adverse selection in insurance results in a situation in which
A. people choose inappropriate or inadequate coverage because they do not understand the complex information in the policies.
B. people choose too much coverage because they do not understand the complex information in the policies.
C. people choose too little coverage because they do not understand the complex information in the policies.
D. unhealthy people become more likely to buy insurance than healthy people, which drives premiums up, which drives even more healthy people away from the market.
E. healthy people become more likely to buy insurance than unhealthy people, which drives premiums up, which drives even more unhealthy people away from the market even though they are the ones who need it most.
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Julia is a 28-year-old nonsmoking, non-drinking female of normal weight. Because of adverse selection in health insurance,
A. She will be charged less for her premiums than people who are higher risks.
B. She is less likely to buy health insurance than the average person, because policy premiums are based on expected medical expenditures of people who are less healthy than she is.
C. When she get health insurance, she will be less likely to take care of herself.
D. She must get health insurance early in life, and is likely to lose health insurance if she smokes, drinks to excess, or gains weight.
E. She is more likely than the average person to buy health insurance, because she is more likely to be offered it.
When sellers have more information about products than buyers do, we would expect
A. sellers to get higher prices for their goods than they could otherwise.
B. buyers to pay lower prices for goods than they would otherwise.
C. high-quality goods to drive low-quality goods out of the market.
D. low-quality goods to drive high-quality goods out of the market.
Which of the following represent examples of adverse selection?
A. Unhealthy people are more likely to want health insurance.
B. Careless drivers purchasing extra auto insurance.
C. Risk averse individuals choosing to buy extra insurance.
D. all of the above
E. A and B only
Externalities
A. are not reflected in market prices, so they can be a source of economic inefficiency.
B. do become reflected in market prices, so they can be a source of economic inefficiency.
C. are not reflected in market prices, so they do not adversely affect economic efficiency.
D. do become reflected in market prices, so they do not adversely affect economic efficiency.
E. may or may not become reflected in market prices, but do not have an impact on economic efficiency in either event.
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