1. The Akerlof model can be used to model the health insurance market. In this market,...

1. The Akerlof model can be used to model the health insurance market. In this market, which party is analogous to car buyers? Which party is analogous to car sellers? What would it mean for the health insurance market to unravel?

Expert Solution

The insurance firms are analogous to car buyers and the insurance customers are analogous to car sellers. The health insurance markets unravels if no insurance company is willing to offer an insurance contract at any premium for fear of attracting the sickest customers. This is analogous to buyers refusing to buy cars at any price for fear of buying the worst cars .

Rahul Sunny answered 2 years ago

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