1) ON a graph that has risk probability on the vertical axis and fullness of insurance on the horizontal access (on the origin, person is uninsured. As one moves gradually to the right, insurance starts becoming available from small benefits, to better and better benefits. The endpoint of the horizontal axis is full coverage insurance where insured does not have any out of pocket costs). The "probability of risk lines" slope up, What observations can we make from this graph?
a. Here insurance does not create a moral hazard
b. Here insurance creates a moral hazard
c. moral hazard increases the probability of the risk
d. b and c
2) In addition to the previous question, assume 2 probability of risk lines pertaining to two different individuals. Justise' probability of risk line is higher than Hasan's probability of risk line. What can you conclude?
a. Justise creates more moral hazard than Hasan
b. Justise creates less moral hazard than Hasan
c. Utility derived by Justise will be lower than utility derived by Hasan
d. a and b e. a and c
3) based on the previous question which of the following is true?
a. Hasan creates a greater social loss than Justise
b. Hasan creates a smaller social loss than Justise
c. The level of social loss from both are exactly equal
d. none of the above
4) If the medical quantity demanded is preventative care, then
a. increase in its demand due to moral hazard will provide even greater social losses to society than if it was a regular medical procedure (no preventative quality)
b. increase in its demand due to moral hazard will provide less social losses to society than if it was a regular medical procedure (no preventative quality)
c. increase in its demand due to moral hazard will provide the same social losses to society than if it was a regular medical procedure (no preventative quality
d. all of the above e. none of the above