Individuals with an expensive pre-existing condition are more likely to purchase health insurance, which exemplifies _____. Individuals who have health insurance visit the doctor more frequently than individuals who are uninsured, which exemplifies _____.
A)moral hazard; adverse selection
B)adverse selection; moral hazard
C)statistical discrimination; adverse selection
D)adverse selection; the principal-agent problem

Question

Quizplus · Accepted Answer

Adverse selection occurs when individuals with a higher risk of needing insurance are more likely to purchase it, while moral hazard refers to the increase in risky behavior or decrease in self-care after an individual is insured, leading to more frequent use of insurance benefits.

Individuals with an Expensive Pre-Existing Condition Are More Likely to Purchase