In the Case of an Insurance Policy,________ Occurs When the Existence

question 36

Multiple Choice

In the case of an insurance policy,________ occurs when the existence of insurance encourages the insured party to take risks that increase the likelihood of an insurance payoff; ________ occurs when those most likely to get large insurance payoffs are the ones who want to purchase insurance the most.

• A) moral hazard; insurance market discrimination
• B) moral hazard; insurance segregation
• C) moral hazard; adverse selection
• D) adverse selection; moral hazard

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Definitions:

Demand Curve

A graphical representation of the relationship between the price of a good and the quantity demanded by consumers, typically downward sloping.

Competitive Industry

An industry characterized by many firms producing similar goods or services, where no single firm has a dominant market share.

Market Price

The existing rate at which an asset or service is available for buying or selling in the market.

Demand Curve

A visual diagram showing the correlation between an item's price and the amount of it that consumers want to buy.