When Considering the Adverse-Selection Problem in the Case of Medical

question 58

Multiple Choice

When considering the adverse-selection problem in the case of medical insurance,as the cost of insurance rises

• A) healthy people might reduce their coverage while unhealthy people will maintain their coverage.
• B) unhealthy people might reduce their coverage, while healthy people will maintain their coverage.
• C) both healthy and unhealthy people will likely reduce their coverage.
• D) both healthy and unhealthy people will likely maintain their coverage.

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Definitions:

Dividend Policy

A company's strategy or policy to decide how much profit it will pay out to shareholders as dividends.

Retention Ratio

The fraction of net profits not paid out as dividends but kept within the corporation for reinvestment or other purposes.

Dividend Payout Ratio

The fraction of net income a firm pays to its shareholders in dividends, representing how much money a company returns to shareholders versus retaining for growth.

Net Income

The total profit of a company after all expenses, taxes, and costs have been deducted from total revenue.