The Problem of Adverse Selection in Insurance Results in a Situation

question 108

Multiple Choice

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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Definitions:

MP Schedule

A management plan or timetable for the production or operations within a company, often detailing when tasks should be completed.

Marginal Product

The increase in output resulting from a one-unit increase in the amount of a single input, holding all other inputs constant.

Capital For Labor

The process of investing in capital goods to increase productivity, often leading to the replacement of labor with technology.

Price Of Labor

The compensation that workers receive in exchange for their labor, often reflected in wages or salaries.