TESTfunda - CAT Question of the Day 30-Jul-13

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	30-Jul-13 TestFunda Home | Sign up for Newsletters | Feedback CAT Question of the Day Answer the question based on the passage given below. Adverse selection is when you do business with people you would be better off avoiding. This is one of two main sorts of market failure often associated with insurance. The other is moral hazard. Adverse selection can be a problem when there is asymmetric information between the seller of insurance and the buyer; in particular, insurance will often not be profitable when buyers have better information about their risk of claiming than does the seller. Ideally, insurance premiums should be set according to the risk of a randomly selected person in the insured slice of the population (55-year-old male smokers, say). In practice, this means the average risk of that group. When there is adverse selection, people who know they have a higher risk of claiming than the average of the group will buy the insurance, whereas those who have a below-average risk may decide it is too expensive to be worth buying. In this case, premiums set according to the average risk will not be sufficient to cover the claims that eventually arise, because among the people who have bought the policy more will have above-average risk than below-average risk. Putting up the premium will not solve this problem, for as the premium rises the insurance policy will become unattractive to more of the people who know they have a lower risk of claiming. Which of the following measures can help reduce adverse selection in insurance?  Make the purchase of insurance compulsory. Greater regulation to limit medical underwriting used by insurers. Greater regulation to prevent insurers from excluding pre-existing conditions or risks. Giving insurers all the tools available to adjust premiums based on each individual's inherent risk. OPTIONS     1) All of the above   2) None of the above   3) B and C only   4) A and D only discuss | yesterday's solution | more questions Tip of the Day For a fixed perimeter, the area of a regular polygon with higher number of sides will always be more than the area of a regular polygon of lesser sides. So, if an equilateral triangle, square, regular pentagon, regular hexagon have the same perimeter, then their order of areas will be: Equilateral triangle < Square < Regular pentagon < Regular hexagon. more tips Last year's Question of the day (29-Jul-12) For how many integral values of y, y4 + 4 is a perfect square of a prime number? OPTIONS     1) 0   2) 1   3) 3   4) 5 discuss TestFunda.com - LEARN with THE LEADER in Online MBA Test Prep Demo Lessons   |   Take a Demo Test   |   Buy Courses   |   Fun Learning Games   |   100-Percentilers About TestFunda.com - TestFunda is backed by www.ZeusLearning.com. 3 IIT-IIM graduates form the Management Team. - The 85+ member team has vast experience in MBA Coaching and Computer-Based Training and Testing. - For 12 years Zeus has created award-winning courseware for companies like Discovery Channel, Reader's Digest, Texas Instruments, Pearson Education. - The TestFunda Advisory Board comprises CEOs and MDs of international educational companies. About This Newsletter You received this email because you have registered with www.TestFunda.com. If you do not want to receive this email or want to sign up for other newsletters from TestFunda  click here. Please do not reply to this mail. Mails sent to this account will not be monitored. Post your comments and solutions under the Question of the Day forum. Problems getting this mail? To get this mail in your inbox, add noreply@testfunda.com to your contact list.       UNSUBSCRIBE / SUBSCRIBE | ABOUT | WHY TESTFUNDA | FAQ | PRIVACY | SUPPORT | CONTACT | DISCUSS   © Enabilon Learning Private Limited. All rights reserved