An Insurance Company Is Likely to Attract Customers Like Clancy

question 16

Multiple Choice

An insurance company is likely to attract customers like Clancy, who wants to purchase insurance because he knows better than the company that he is more likely to make a claim on a policy.What is the term used to describe the situation above?

• A)moral hazard
• B)adverse selection
• C)asymmetric information
• D)economic irrationality

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Definitions:

Homogeneous Oligopoly

A market structure featuring a small number of firms offering products or services that are largely identical or undifferentiated.

Virtually Identical

Items or situations that are almost the same or very closely resemble each other in most aspects.

Price

The amount of money required to purchase a good or service, often determined by the interplay of supply and demand.

Output

The quantity of goods or services produced by a business, industry, or economy within a certain period.