Answer options:

1. Unlikely or likely

2. Moral hazard or adverse selection

3. High or lower

4. High or lower

5. Elderly or younger

6. Elderly or younger

7. Would or would not

8. Elderly only or younger only

9. Would or would not

Suppose that elderly drivers are less likely to have an automobile accident than younger drivers. As a result, insurance companies charge lower insurance premiums for elderly drivers. Suppose one insurance company decided to charge elderly drivers and younger drivers the same premium based on the average risk of an accident among both groups. Using your knowledge of the problems associated with asymmetric information, explain whether you think this insurance company will be profitable. This insurance company is unlikely to be profitable because of the problem of adverse selection The insurance premium based on the average risk of an accident among both elderly and younger drivers will be (higher than the premium for younger drivers alone and lower than the premium for elderly drivers alone. Therefore, (younger drivers will not choose to be insured by this company but (elderly drivers will. The premium charged based on the average risk of elderly and younger drivers be sufficient to cover the claims of an elderly-only driver pool and so the company (would not be profitable. would not