by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Moral Hazard Problem?Moral hazard refers to the case when people engage in riskier behavior with insurance than they would if they did not have insurance. For example, if you have health insurance that covers the cost of visiting the doctor, you may be...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are Risk Groups?Not all of those who purchase insurance face the same risks. Some people may be more likely, because of genetics or personal habits, to fall sick with certain diseases. Some people may live in an area where car theft or home robbery is more likely...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Fundamental Law of Insurance?The major additional costs to insurance companies, other than the payment of claims, are the costs of running a business: the administrative costs of hiring workers, administering accounts, and processing insurance claims. For...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How Does the Government provide Social Insurance?Federal and state governments run a number of insurance programs. Some of the programs look much like private insurance, in the sense that the members of a group make steady payments into a fund, and those in the group...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
Is Consumer Behavior Rational in Economics?There is much human behavior that mainstream economists have tended to call “irrational” since it is consistently at odds with economists’ utility maximizing models. The typical response is for economists to brush these...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Imperfect Information Affect Equilibrium Price and Quantity?The presence of imperfect information can discourage both buyers and sellers from participating in the market. Buyers may become reluctant to participate because they cannot determine the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Imperfect information?Every purchase is based on a belief about the satisfaction that the good or service will provide. In turn, these beliefs are based on the information that the buyer has available. For many products, the information available to the buyer...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Regulatory Capture?One difficulty with government price regulation is what economists call regulatory capture, in which the firms that are supposedly regulated end up playing a large role in setting the regulations that they will follow. When the airline...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Price Cap Regulation?Price cap regulation is where the regulator sets a price that the firm can charge over the next few years. A common pattern was to require a price that declined slightly over time. If the firm can find ways of reducing its costs more...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Cost-Plus Regulation? Cost-plus regulation is where regulators calculate the average cost of production, added in an amount for the normal rate of profit the firm should expect to earn, and set the price for consumers accordingly. This method was known as...
