Asked by Silvia Montañes Sintes on Jun 01, 2024
Verified
Suppose a firm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe benefit money toward specific insurance. Mary, who has five kids needing braces, selects the family dental coverage. This is an example of the
A) free-rider problem.
B) principal-agent problem.
C) adverse selection problem.
D) moral hazard problem.
Adverse Selection
A situation where sellers have information that buyers do not, or vice versa, affecting transactions in a way that is disadvantageous to one party.
Cafeteria Plan
An employee benefit plan that allows workers to choose from a variety of pre-tax benefits, including health insurance, retirement plans, and cash.
Family Dental Coverage
A type of health insurance plan designed specifically to cover dental expenses for an individual and their family members.
- Acquire knowledge on the concepts of adverse selection and moral hazard as they apply to insurance markets.
Verified Answer
Learning Objectives
- Acquire knowledge on the concepts of adverse selection and moral hazard as they apply to insurance markets.
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