Question

(c) Government intervention is always required to deal with the problem of asymmetric information in insurance. True or false? Explain your answer.

(d) Outline the rationale for and benefits of a publicly funded health service.

 

Answer 1

(c)

The problem of asymmetric information in economics is defined as one in which one party to a transaction has greater knowledge than the other. For example, in the insurance sector, people have more knowledge about their health than the insurance provider themselves may have. Income insurance and business insurance is another form in which companies may have a better understanding of what risks they may have in the future.

In my opinion, the problem can be solved without government intervention also. For example, earlier insurance companies were not this robust with research of risks and had priced their offerings equally in a market. But today, due to the extensive forces of research they have the ability to regulate pricing and have stricter contracts which deal with those that hide asymmetric information.

Thus, to say that governments are the only ones which can control asymmetric information is not true. It can also be controlled on the level of the insurance company which through active research and engagement may conclude what may happen in the society and can deal with the problem in a price effective and profit effective manner.

D)

In economics, the core reason for funding a public health service arises from the overall impact that it has on the functioning of the country. Any economy loses its productivity if a major chunk of the population remains impacted by health care issues.

To elevate themselves from this, it is important that government spending goes towards health care. Poor people are the worst effected as they do not have access to modern education, sanitation and other facilities on one hand, and on the other if they are impacted by slow health care economics, they may feel the impact even further.

To avoid this, public health care spending is initiated to ensure that the overall health care services can provide for poor people and it does not adversely impact the labour productivity of the nation which has a huge bearing on income, demand and supply in the economy.