If Reckless Drivers Are More Likely to Buy Automobile Insurance

question 19

Multiple Choice

If reckless drivers are more likely to buy automobile insurance than safe drivers are,

• A) a moral hazard has occurred.
• B) adverse selection has occurred.
• C) the market for insurance is efficient.
• D) then automobile insurance will be fairly priced.

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Definitions:

Security Market Line

A line graph that represents the relationship between risk (beta) and the expected return of the market and various securities.