Your instructor has decided that the best way to explain adverse selection and moral hazard is to sell “grade insurance” policies to students in your class. Policyholders who are unhappy with their fi nal course grade can fi le a claim for any grade they desire. Policies are sold for $20.

However, only three policies will be sold in your class. Describe how adverse selection and moral hazard would likely play themselves out in your course. Give specifi c examples of how your instructor could amend these policies in an attempt to reduce adverse selection and moral hazard.          Appendix