In the insurance industry, high-risk customers are more likely to take out insurance. This is an example of ?
Correct answer: C. adverse selection
- A. moral hazard
- B. risk aversion
- C. adverse selection
- D. a poor gamble
Explanation
Adverse selection occurs before an insurance contract when people with greater hidden risk are more likely to seek coverage. Moral hazard occurs after coverage, when insured behaviour may become less cautious.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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