Question

The purchase of insurance is considered rational when it is used to _ O A. solve a principle-agent problem O B. overcome propitious selection O C. create moral hazard O D. overcome asymmetric information QUESTION 4 Which of the following is an example of moral hazard? O A. The passage of laws to enforce a specific view of morality. OB. The overuse of antibiotic durgs. O C. A healthy person refusing to purchase health insurance. O D. A sports team owner arguing they will move the team if the city does not build a new stadium.

Answer 1

Answer:

1. The correct option is D. Overcome asymmetric information. Insurance helps the person who gets the insurance to overcome the risk associated with uncertainty. This way insurance bridges the lack of complete information by removing the risk.

4. The correct option is B. The overuse of antibiotics drugs. In this case the person using the drugs is causing risk to his own life by the overuse which is an example of moral hazard.