In Each Case Identify Whether the Situation Is a Case

question 83

Essay

In each case identify whether the situation is a case of adverse selection or moral hazard.Explain.a.Jasper knows,but the car rental company does not know when he is trying to rent a car during a blizzard in Manitoba,that Jasper grew up in a tropical climate and has no idea how to drive in cold weather and snowy conditions.b.Joan has received a loan from the bank to finance the purchase of more inventory for her quilt shop,but she intends to use the money (without telling the bank)to take a safari in Africa.c.Some companies sell annuities,which are policies that make periodic payments as long as the purchaser lives.Jane is trying to buy an annuity.Jane knows,but the annuity issuers do not know,that people in Jane's family routinely live to age 100.

---

Definitions:

Contradict

to assert the opposite of a statement made by someone, implying disagreement or denial.

Automates

The process of making an operation or procedure carried out without human intervention through the use of mechanical or electronic devices.

Agency

A relationship where one party (the agent) is authorized to act on behalf of another (the principal) in dealing with third parties.

Impossible

A term used to describe a task or condition that cannot realistically be fulfilled or achieved.