Question

Consider the following story:Diversifun, Inc., an insurance company, recently decided to offer boat insurance. Diversifun was concerned that the most likely boat insurance customers would be the least competent, highest-risk boat captains, because they stand to benefit most from boat insurance coverage. Since Diversifun cannot distinguish perfectly between high-risk and low-risk skippers, it decided to set its boat-insurance premiums a bit higher to account for the foolhardy sea captains.The economic problem in this story is known as________________.A) Adverse selectionB) SignalingC) Moral hazardD) Screening

Answer 1

Answer:

correct option is A) Adverse selection

Explanation:

to find out

the economic problem in the story

A) Adverse selection B) Signaling C) Moral hazard D) Screening

solution    

• Diversifun boat insurance so here in economic problem story is Adverse selection

• adverse selection is the tendency of those in the risky job  or the high risk lifestyles to get life insurance
• It is the situation where sellers has information that buyers do not  about some aspect of product quality ( and the vice versa)

so here correct option is A) Adverse selection