(a) Explain the difference between adverse selection and moral hazard in insurance markets. Can one exist without the other?
(b) An insurance company is considering issuing three types of fire insurance policies: (i) complete insurance coverage, (ii) complete coverage above and beyond a $10,000 deductible, and (iii) 90 percent coverage of all losses. Which policy is more likely to create moral hazard problems?
(c) Why did MGM bundle Gone with the Wind and Getting Gertie's Garter? What characteristic of demands is needed for bundling to increase profits?
(d) Why might a seller find it advantageous to signal the quality of a product? How are guarantees and warranties a form of market signalling?