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:

Height and Weight

Measurements used to assess physical development, nutritional status, and health risks in individuals.

Lungs

Organs in the respiratory system responsible for gas exchange, taking in oxygen and expelling carbon dioxide.

Set Point

A theory suggesting individuals have a predetermined, stable weight or temperature that their body regulates and maintains automatically.

Weight

A measure of the force exerted by gravity on an object, often quantified in units such as pounds or kilograms.