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:

Philosophy

The analysis of the basic aspects of knowledge, reality, and existence, particularly when examined within an academic setting.

Service Sector

A segment of the economy that involves delivering services rather than producing goods, including sectors like banking, healthcare, and education.

Economy

A system of production, distribution, and consumption of goods and services within a geographical area, governed by supply and demand laws.

Health and Medical Insurance

A type of insurance coverage that pays for medical and surgical expenses incurred by the insured, often including preventive care and treatments.