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EC248 Exam |Questions Solved 100% Correct
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EC248 Exam |Questions Solved 100% Correct
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EC248 Exam |Questions Solved 100% CorrectFactors that determine the risk facing a person - ✔- probability of an event occurring
- potential size of the loss associated with the event
Risk pooling definition - ✔- occurs when each member of a large group contributes a small
amount to the "pool" in return for the promise that if a specific event occurs, money from
that pool will be used to compensate the individual for the loss
- reduces total risk to the group
-risk reduction is a source of welfare gain
-health risk cannot be pooled
effectiveness of risk pooling depends on - ✔- size of the risk pool
- independence of risks across members of the risk pool
- independence between having insurance and size of the loss (moral hazard)
Loading cost definition - ✔administrative costs associated with providing insurance
, Risk adjustments definition - ✔insurers adjust premiums to reflect observable
characteristics of an individual that are associated with expected health costs (age, sex,
chronic illness...)
Limitations of standard insurance model - ✔- implies individuals view gains and
losses symmetrically
-implies magnitude of gains and losses do not matter
- sensitivity to how a gamble is framed
- risk reduction is the only source of welfare gain
- insurance may have an access motive
Cost sharing forms of insurance - ✔-deductions (total $)
-co-insurance (%)
-co-payments ($ per unit)
community rated premiums - ✔insurance premiums for which there is no
adjustment -premium is the same for everyone
4 sources of market failure (insurnace) - ✔-moral
hazard -risk selection
-economies of scale in insurance provision
-missing (or incomplete) market of insurance
Ex ante moral hazard - ✔insurance induced changes in behaviour that alter the probability
of an insured event occurring
-more of a concern wrt insurance on material possessions (house, car)
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