1. Moral hazard is a form of information asymmetry Essays

1. Moral hazard is a form of information asymmetry Essays 1. Moral hazard is a form of information asymmetry when one decision-making agent takes more risky decisions because another decision-making agent bears the costs of the additional risk. An example in healthcare is medical insurance. If a person is well covered by a medical insurance, she knows that her healthcare costs will be covered by the insurer, therefore she has higher incentive to engage in risky lifestyle, habits and health practices, since the consequent healthcare expenses will be borne by the insurer. This additional risk caused by one agent is borne by another agent. 2. The concept of adverse selection arises when either buyer or seller has lack of information regarding the product in concern this leads to one side with inflormation making use of the other side with lack on information. Like in insurance if we know that our car is going to be used as ataxi and eill be travelling the high end mountains so the chances of it getting hurt is much more so the company must charge high premiums from such people but they cant because of lack of information 3. STRENGTHS/PROS OF GDP GDP provides a better analysis or measure of economy activity through its growth rate and changes in an economy than any other existing measure. It summarizes a whole range of economic information in and determines the comparative strengths and weaknesses of various sectors. GDP helps policy-makers and analysts to easily guide, adjust and implement economic policy. GDP serve as accurate barometer of the business climate, where it provides the government and business useful information to adjust in different kinds of contingency problems like recession and depression. GDP serve as a simple proxy for social and economic welfare. GDP is widely used in different parts of the world that give economist studies in comparing countries. WEAKNESSES/CONS OF GDP GDP does not include non-market activities. These activities are based on production and consumption that occur outside the market economy that does not have a price attached like unpaid house workers, volunteer work, barter and the illegal drug trade. GNP does not include domestic household products or black market. GNP does not consider how the wealth of a nation is distributed equally. For example GDP provides an estimate of each person share of the market economy but in reality some people share of the economy is greater than others. This level of unequal distribution of incomes and consumption and the incidence of poverty cannot be determined by tracking the GDP. Some GDP measured expenditures do not contribute to Economic Welfare. It does not account for any welfare loss or any negative events that results from an event such as a natural disaster environmental cleanup or reconstruction effort contributes to welfare and the GDP. 4. c 5. 6. 7. 8. c 9. b 10. b 11.