Travel Insurance (Which Pays a Traveler If the Traveler Needs

question 25

Multiple Choice

Travel insurance (which pays a traveler if the traveler needs to cancel his or her trip) has a clause that states it will not pay if the trip is cancelled because of a pre-existing condition. If sick people are more likely to purchase travel insurance, this clause is meant to

• A) reduce moral hazard.
• B) reduce adverse selection.
• C) increase moral hazard.
• D) increase adverse selection.

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Definitions:

Purchases of Services

Transactions where buyers acquire services rather than tangible goods from sellers.

Net Exports Component

The difference between a country's total exports of goods and services and its total imports, part of the gross domestic product calculation.

Consumption Component

The part of total economic output that is used by individuals and households for personal needs and wants.

Additions to Inventory

Increases in the quantity of goods held by a company during a particular period, often for future sale or production use.