QUESTION 1 Christina owns a condo in South Padre Island. She is considering buying ood insurance for her condo since her home owners' policy does not cover ood damage. There is a 20% chance that a hurricane will hit the island, causing $100,000 of damage to her condo. Because she is risk averse, she would pay up to $1,000 more than her expected losses for ood insurance. What would be the maximum price she would pay for coverage? |:l QUESTION 2 Would a risk neutral insurance company sell her insurance for $20,500 0 No, a risk neutral insurance company would not sell her insurance at any price hurricanes are too risky. Only a riskloving insurance company would sell insurance. 0 No, a risk neutral insurance company would not sell insurance unless she paid at least $21 ,000 0 Yes, a risk neutral insurance company would sell her insurance for any price greater than $13,000 0 Yes, a risk neutral insurance company would sell her insurance for any price greater than $20,000 0 Yes, a risk neutral insurance company would sell her insurance for any price greater than $20,500 QUESTION 3 Steve is a very careful driver and has never been involved in an accident. Oscar, in contrast, nds that he is easily distracted when driving and has been involved in several recent accidents. When the price of insurance becomes too high, Steve does not want buy insurance while Oscar is still willing to buy it. This is an example of: O Moral Hazard only 0 Adverse selection only 0 Neither moral hazard nor adverse selection 0 Both moral hazard and adverse selection QUESTION 4 Anew govem ment mandate requires everyone to purchase health insurance. After getting insurance, Michelle decides to start practicing several risky skills to pursue her lifetime goal of becoming a stunt person even though she knows that she could be hurt doing so. This is an example of: O Moral Hazard only 0 Adverse selection only 0 Both moral hazard and adverse selection 0 Neither moral hazard nor adverse selection QUESTION 5 When Michael chooses his home insurance company, he asks his neighbors about their experience with their agents and picks the one who was mostly highly recommended. This is an example of: O Moral Hazard only O Adverse selection only Both moral hazard and adverse selection Neither moral hazard nor adverse selection