Lesson 1320 of 1524
Information, Risk, and Insurance
In goods markets, buyers facing imperfect information about products may depend upon money-back guarantees, warranties, service contracts, and reputation.
Practice this chapterIn goods markets, buyers facing imperfect information about products may depend upon money-back guarantees, warranties, service contracts, and reputation. In capital markets, lenders facing imperfect information about borrowers may require detailed loan applications and credit checks, cosigners, and collateral
In labor markets, employers facing imperfect information about potential employees may turn to resumes, recommendations, occupational licenses for certain jobs, and employment for trial periods. Many make economic transactions in a situation of imperfect information, where either the buyer, the seller, or both are less than 100% certain about the qualities of what they are buying or selling.
insurance — method of protecting a person from financial loss, whereby policy holders make regular payments to an insurance entity; the insurance firm then remunerates a group member who…. imperfect information — a situation where either the buyer or the seller, or both, are uncertain about the qualities of what they are buying and selling. collateral — something valuable—often property or equipment—that a lender would have a right to seize and sell if the buyer does not repay the loan. cosigner — another person or firm who legally pledges to repay some or all of the money on a loan if the original borrower does not.
Worked example
What does “insurance” mean in Information, Risk, and Insurance?
- 1Use the wording this chapter gives for insurance.
- 2The book says: method of protecting a person from financial loss, whereby policy holders make regular payments to an insurance entity; the insurance firm then remunerates a group member who….
- 3Do not use the meaning of imperfect information. That term means a situation where either the buyer or the seller, or both, are uncertain about the qualities of what they are buying and selling.
Result: method of protecting a person from financial loss, whereby policy holders make regular payments to an insurance entity; the insurance firm then remunerates a group member who…
Why. That is the meaning this chapter gives for insurance.
Do not swap insurance and imperfect information. insurance means method of protecting a person from financial loss, whereby policy holders make regular payments to an insurance entity; the insurance firm then remunerates a group member who…. imperfect information means a situation where either the buyer or the seller, or both, are uncertain about the qualities of what they are buying and selling.
Practice margin
This chapter
A fresh set from this chapter only. Choose 10 or 20. Multiple choice and fill-in, with no repeat inside the set.