People with Hidden Health Problems Are More Likely to Buy

question 19

Multiple Choice

People with hidden health problems are more likely to buy health insurance than are other people. This is an example of

• A)moral hazard and makes the cost of health insurance higher than otherwise.
• B)moral hazard and makes the cost of health insurance lower than otherwise.
• C)adverse selection and makes the cost of health insurance higher than otherwise.
• D)adverse selection and makes the cost of health insurance lower than otherwise.

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Definitions:

Private Good

A product or service that is excludable and rivalrous, meaning its use by one individual prevents others from using it, and it can be kept exclusive to those who pay for it.

Marginal Cost

The rise in cost resulting from the manufacture of an additional unit of a product or service.

Public Good

A product or service that is non-excludable and non-rivalrous, meaning that one's use of the good does not reduce its availability to others.

Positive Externality

A benefit that is enjoyed by a third-party resulting from an economic transaction to which they were not involved.