Homework Assignment Example | Topics and Well Written Essays - 250 words - 10

Homework - Assignment Example This means that there should be a balance between the cost and benefit of pollution control. If the business is asked to pay more than the benefits it has obtained, this request will become ineffecient for the business and the business will close. 2. Adverse selection is a term used to refer to the outcomes of the decisions that are based on varying information. This outcome is caused because the information available to the purchasers and sellers is not same. Moral hazard is term used to describe a situation when an individual takes an action knowing that it will not negatively impact him but will negatively impact others and the individual himself experiences profitability out of this decision. Moral hazards are experienced by the insurance sector of the health industry, although difference in information exists in different parts of the health industry, but it impacts the insurance sector in the worst possible manner (Taylor 484). Due to asymmetry of information, insurance fail to realize the real risk they are taking in insuring an individual. Adverse selection effects health insurance companies because the best plans offered by the companies are usually purchased by those whoa re terminally ill and such plans cost more m oney to insurance