Scenario 2:? You create a new insurance program for Cal Poly students. The insurance charges a fee each month for the student, and provides them a payment if they flunk out of Cal Poly.
1. Which program would best resolve the adverse selection problem in Scenario 1.
a. Seniors are offered lower prices than other buyers.b. Provide reputation ratings of sellers for buyers.c. Both of the others.d. None of the others
2.Which program would best resolve the adverse selection problem in Scenario 2.
a. Use information from students high school performance to determine monthly fees and payment.b. Allow students to resell policies to other students.c. Make the payment if the student flunks out greater than the sum of the fees paid by the student.d. Both a and b.
Consider the following situation
Suppose Irving is taking his car in for an oil change and inspection. ?He is not experienced with car repairs himself and relies on the experts to diagnose problems with his car. ?
3. Suppose Irving goes to the Quick-Lube, a firm which primarily offers an oil changes plus 20-point inspection and does not do any further repairs. ?Which of the following moral hazard problems exist?
a. Quick-Lube does not do a thorough inspection and misses a substantial problem with the car.b. Quick-Lube finds a minor problem with the car but suggests major repairs to fix it, above and beyond what is immediately necessary.c. Both of the other choices are likely to occur due to the moral hazard problem.d. There is no moral hazard problem.
4.?Suppose Irving goes to the SLO Auto Repair, a firm which offers an oil changes plus 20-point inspection as well as many other auto services and repairs. Which of the following moral hazard problems exist?
a. SLO Auto Repair?does not do a thorough inspection and misses a substantial problem with the car.b. SLO Auto Repair finds a minor problem with the car but suggests major repairs to fix it, above and beyond what is immediately necessary.c. Both of the other choices are likely to occur due to the moral hazard problem.d. There is no moral hazard problem.
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