Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 19, Problem 1MC
To determine
Insurance premium price.
Expert Solution & Answer
Explanation of Solution
Since it is not possible to identify the reckless doctor, the insurance premium price should be equal to $30,000. When fixing this price, all the reckless doctors would buy the insurance. Thus, option ‘d’ is correct.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
What are some strategies for reducing adverse selection in insurance markets? What sorts of problems do these solutions cause?
Name two solutions to adverse selection in insurance and explain how they work.
Briefly explain what it means for information to be asymmetric.
a. What is Moral Hazard?
b. Identify and briefly explain three methods that insurance companies could use to off-set the moral hazard associated with their industry.
c. What is Adverse Selection?
Chapter 19 Solutions
Managerial Economics: A Problem Solving Approach
Knowledge Booster
Similar questions
- How might adverse selection make it difficult for an insurance market to operate?arrow_forwardIf people get higher pay from insurance than their premiums. Will this increase or decrease the death rate of average persons? Is this an example of moral hazard or adverse seletion? How will an insurance company deal with these problems?arrow_forwardwhy is adverse selection important in healthcare insurance markets.arrow_forward
- What would explain why moral hazard might not occur after the large gains in health insurance coverage?arrow_forwardIt was taught that liability insurance would undermine the tort system, which has as its central theorem the concept that the individual responsible for injuring another should be made to pay for that injury. Do you think the existence of liability insurance causes one to be less careful than he or she might otherwise be?arrow_forwardHow does adverse selection impact the pricing and sustainability of insurance markets?arrow_forward
- In economic terms, moral hazard is the negative relationship between the out-of-pocket price of the physician visit and the quantity of the physician visits demanded in a given time period. a.True b.Falsearrow_forwardIn the RAND study, two plans had full coverage for spending within the hospital, but one had a $150 deductible for ambulatory care. Th e plan with the ambulatory care deductible had a lower probability of hospital admission (0.115) per year than did the plan with full coverage for everything (0.128), even though both plans covered hospital care fully. (See Table) What does this tell you about the use of hospital and ambulatory. Plan Admissionsper Year Inpatient Cost(1984 Dollars) C = 0 0.128 409 C=0.5 0.092 450 C=0.95 0.099 315 $150 individual deductible 0.115 373arrow_forwardSuppose the demand for anxiety medication prescriptions is given by P = 300 – Q. Suppose the marginal cost for a prescription of anxiety medicine is constant at $100 per prescription. a. What is the quantity demanded in the absence of any insurance coverage for anxiety medication? b. Now, suppose there is full insurance coverage for anxiety medication (i.e. no cost-sharing at all). What is the new quantity demanded? c. Finally, suppose insurance covers anxiety medication, but there is 20% coinsurance, meaning that individuals must pay 20% of the cost of anxiety medication out of pocket. What is the new quantity demanded? d. Under the insurance structure given in part (c), what is the deadweight loss associated with the presence of insurance coverage?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning