Related to the Economics in Practice on Page 360: Insurance

question 57

Multiple Choice

Related to the Economics in Practice on page 360: Insurance companies are interested in being legally allowed to obtain the results of genetic testing before deciding on issuing insurance policies to potential buyers, which would lessen the problem of ________ in the health insurance market.

• A) moral hazard
• B) market signaling
• C) adverse selection
• D) risk-loving

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Definitions:

Profit-Maximizing Output

The level of production at which a company can achieve the highest possible profit based on its cost structure and the market price of its products.

Economic Profit

Profit calculated by subtracting both explicit (direct) and implicit (indirect or opportunity) costs from total revenues.

Economic Profit

The profit a company makes after deducting both explicit (direct payments) and implicit (opportunity) costs.

Normal Profit

Normal profit is the minimum level of profit needed for a company to remain competitive in the market, equivalent to the opportunity cost of capital.