What is difference in moral hazard and adverse selection

Assignment Help Business Economics
Reference no: EM131083597

a) What is the difference between moral hazard and adverse selection?

b) ?Car Depreciation problem: A common complaint is that a new car will depreciate by 25% as soon as the new owner drives it off the lot. This information comes from resale price data from cars sold just months after the initial purchase. How does adverse selection imply that most cars depreciate much less?

c) Samantha often forgets to lock her house. This has caused the probability of a burglary to be 30%. If her house gets broken into, she faces a property loss of $10,000, otherwise she gets to keep her $100,000. If Samantha is offered an insurance policy for her house to protect her from loss at $3,000, what is her expected wealth?

d) Both Nadia and Samantha are applying to insure their car against theft. Nadia lives in a secure neighborhood, where the probability of theft is 10%. Samantha lives in a lesser secure neighborhood where the probability of theft is 25%. Both Nadia and Samantha own cars worth $10,000, and are willing to pay $100 over expected loss for insurance. How much would Nadia be willing to pay for the insurance?

e) Tom wants to avoid any accidents on the work floor of his factory. If an accident does occur, it would cost him $500,000 in damages. Installing safety equipment would decrease the probability of an accident occurring from 20% to 10%. However, the equipment costs $20,000 to install. What is his expected loss after installing the safety equipment?

Reference no: EM131083597

Greatest impact on the exchange rate

What is the probable effect of each of the following on the exchange rate of a country, other things being equal? The quantity of oil imports is greatly decreased, but the val

Maintenance costs on a certain piece of equipment

Maintenance costs on a certain piece of equipment are estimated to be $500, $600, $700, $800, and $900 at the ends of years 1, 2, 3, 4, and 5, respectively. The time value of

Large number of independent loan prospects

Large number of independent loan prospects are available, each paying return of $16 on $100 with probability of 1/2 and 1/2 of $4 return. Each saver in economy derives happine

Transfer payments have on country gross domestic product

In at least three well composed paragraphs, please describe the effect that changes in business taxes, personal income, and transfer payments have on a country’s gross domesti

Concave utility function

Hugo has a concave utility function of U(W) = W^0.5. His only asset is shares in an Internet start-up company. Tomorrow he will learn the stock's value. He believes that it is

What is the equivalent annual capital cost of the press

A hydraulic press has the book value of $10,143 in its fifth year of operation. The purchase price of the press was $21,512. If the minimum acceptable rate of return is 11%, w

Explain firm output and labour employed in short run

Production When you have completed your study of this chapter, you will be able to 1 2 3 4 Explain how economists measure a firms cost of production and profit. Explain rela

Money supply-velocity-the price level and real output

The equation of exchange is an identity that relates the money supply, velocity, the price level, and real output. An identity is something that is true by definition.

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd