Asked by Fernando Oropeza on Apr 26, 2024
Verified
If those who are most willing to bear risk end up bearing it,then we say that the insurance market is:
A) experiencing adverse selection.
B) efficient.
C) equitable.
D) showing signs of moral hazard.
Adverse Selection
A situation in which one party in a transaction possesses information that the other party does not, leading to an imbalance in the exchange, often seen in insurance markets.
Insurance Market
A market where individuals or entities can transfer or share risk by purchasing insurance policies from insurers, who assume the risk in exchange for premiums.
- Explain the role of correlated and independent risks in investment strategies and risk reduction.
Verified Answer
AJ
aysia jonesApr 29, 2024
Final Answer :
B
Explanation :
When those most willing to bear risk end up bearing it, the insurance market is considered efficient because it means that risks are being allocated to those best able or most willing to manage them. This is a fundamental principle of market efficiency, where resources (in this case, risk-bearing capacity) are allocated to those who value them the most.
Learning Objectives
- Explain the role of correlated and independent risks in investment strategies and risk reduction.