Which of the following is an example of adverse selection? a) A safe driver taki
ID: 1197794 • Letter: W
Question
Which of the following is an example of adverse selection?
a) A safe driver taking greater risk in a rental car than his own car.
b) A terminally ill person purchasing life insurance.
c) An employment contract encourages little effort on the part of employees.
d) All of the above
Which of the following is not an example of moral hazard?
a) People are more likely to lock their own car than a rental car.
b) Skateboarders attempt more difficult maneuvers when wearing a helmet.
c) Bad salespeople are less drawn to commission-based jobs.
d) People with fire insurance are less likely to install smoke alarms.
You are taking a multiple-choice test that awards you one point for a correct answer and penalizes you 0.25 points for an incorrect answer. If you have to make a random guess and there are five possible answers, what is the expected value of guessing?
a) 0.5 points
b) 0.25 points
c) – 0.25 points
d) 0 points
An example of moral hazard is moral hazard has to do with unobservable characteristics of individuals
a) workers shirking when the boss is not looking
b) Insured workers diet and exercise
c) drivers of safer cars turning their phones off before driving
d) borrowers investing their loan proceeds exactly as the bank requires
Adverse selection is
a) when people act differently because they are insured
b) when more risk averse people want to be insured more
c) when people at greater risk want to be insured more
d) when your guess at a test question is wrong
Explanation / Answer
Which of the following is an example of adverse selection?
a) A safe driver taking greater risk in a rental car than his own car.
Which of the following is not an example of moral hazard?
c) Bad salespeople are less drawn to commission-based jobs.
You are taking a multiple-choice test that awards you one point for a correct answer and penalizes you 0.25 points for an incorrect answer. If you have to make a random guess and there are five possible answers, what is the expected value of guessing?
b) 0.25 points
An example of moral hazard is moral hazard has to do with unobservable characteristics of individuals
a) workers shirking when the boss is not looking
Adverse selection is
c) when people at greater risk want to be insured more
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