Moral hazard can result

| November 24, 2016

QUESTION 1

1. Moral hazard can result from

a.

being uninsured

b.

having no insurance to having partial insurance

c.

having no insurance to having full insurance

d.

having lousy insurance to having better insurance from the perspective of the patient

e.

b, c, and d

3 points

QUESTION 2

When moral hazard occurs, the immediate impact is that p (or the probability of the risk)

a.

decreases

b.

increases

c.

is not affected

d.

none of the above

3 points

QUESTION 3

Nik Walenda who walks the tightropes across buildings, over the grand canyon, and over niagara falls, will not do these things if his group is unable to get insurance before these events. An approved insurance policy is one of their absolute basic requirements before these very risky activities are undertaken. This is an example of insurance causing

a.

ex post moral hazard

b.

ex ante moral hazard

c.

natural hazard

d.

medical arms race

e.

none of the above

3 points

QUESTION 4

When Indira’s child was diagnosed with ear infection, the doctor was going to recommend either Cefaclor or the cheaper Amoxicillin. They are equally as effective.

The doctor gave this information to Indira. In addition the doctor also said that her insurance will cover both and her copay will be the same for either one.

Indira chooses the more expensive Cefaclor. This is a case of

a.

ex post moral hazard

b.

ex ante moral hazard

c.

natural hazard

d.

coinsurance

e.

deductible

3 points

QUESTION 5

If the original price of medical care (with no insurance) equal $1,000, the quantity demanded = 10. If insurance is provided, out of pocket drops to $300. Also the

quantity of medical care that will be demanded rises to 40. Is there a social loss due to insurance?

a.

yes

b.

no

c.

not enough information

d.

none of the above

3 points

QUESTION 6

From the previous problem if there is social loss how much is it?

a.

there is no social loss

b.

$21,000

c.

$10,500

d.

$3,500

3 points

QUESTION 7

Which situation provides the potential for the largest social loss due to insurance?

a.

large price distortion and steep demand curve

b.

small price distortion and steep demand curve

c.

small price distortion and steep demand curve

d.

large price distortion and relatively flat demand curve

3 points

QUESTION 8

Marcus and Jameis have identical insurance policies except that Marcus coinsurance rate is 20% while Jameis coinsurance rate is 18%. Whose policy will create a greater social loss or moral hazard?

a.

Marcus

b.

Jameis

c.

both create identical social losses

d.

none of the above

3 points

QUESTION 9

Trey and Elijah have identical insurance policies except that Trey’s copay is $20 while Elijah’s copay is $18. Whose policy will create a greater social loss or moral hazard?

a.

Trey

b.

Elijah

c.

they will cause identical social losses

d.

none of the above

3 points

QUESTION 10

Donald and Ben have identical insurance policies except that Donald has a deductible of $1,000 while Ben’s deductible is $1,800. Whose policy will create a greater social loss or moral hazard?

a.

Donald

b.

Ben

c.

Mario

d.

Jeb

e.

Carly

3 points

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