Exam 16: Information, Risk, and Insurance

Jeremy is an 18 year old college student with no prior credit history, who still lives at home. He will have a part-time job while he is attending college and has applied for a car loan. In these circumstances, the bank's loan officer will most likely approve the loan if Jeremy can

Contrast a money-back guarantee and a warranty.

Guarantees, warranties, and service contracts are all examples of

A ______________ is a promise to fix or replace the good, at least for a certain period of time.

____________________________ often have deductibles, which is an amount that the insurance policyholders must pay out of their own pocket ____________________ .

What name is given to an organization that receives a fixed amount per each person enrolled in a health care plan, regardless of how many services are provided?

Automobile manufacturers use warranties as incentives for buyers to purchase their products. Why are warranties on vehicles important to buyers?

In the insurance industry, homeowners are referred to as ___________ who share roughly the same risks of an adverse event occurring.

The government rules on advertising are enforced by the ________________________.

Why would a bank require a borrower to have collateral or a cosigner before agreeing to lend funds?

One strategy insurance companies have adopted to reduce moral hazard is to require an injured party to pay a _______________ .

When Morty leased his new car, he was required by law to _________ to ______________ of financial loss caused by a vehicle collision.

All but one of the following is a mechanism intended to provide reassurance against imperfect information. Which is it?

One prominent U.S. study found that when people face ____________ for their health insurance, they consume about ________ medical care than people who have complete insurance.

Imagine a consumer shopping for a used car is worried about getting stuck with a lemon, finds two that appear very similar. One car costs just about what the individual expects this make and model to cost, while the other costs only half as much. Briefly explain the problem confronting this consumer? Give an example of another market where similar problems arise.

When the level of insurance premiums that someone pays is equal to the amount that an average person in that risk group would collect in insurance payments, the level of insurance

Briefly describe the legal consequences of acting as a cosigner of a loan.

In the U.S., the law requires employers offering pension plans for their employees to pay a small fraction of those pension contributions to the _________________________, which will pay at least some pension benefits to workers if a company goes bankrupt and cannot pay the pensions it has promised.

Identify and briefly explain three methods that insurance companies use to off-set the moral hazard associated with their industry.

A buyer confronted with _______________will often believe that the price being charged reveals something about the ____________ of the product.