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Suppose there are two types of people who need health insurance; high-risk and low-risk consumers. High-risk consumers have a relatively high probability of needing expensive medical care and on average incur $2,000 of medical expenses per year. The high-risk consumers would be willing to pay up to $2,500 for insurance that covers all their medical bills. Low-risk consumers would be willing to pay up to $1,400 for full-coverage insurance and on average would incur on average $1,200 in medical bills. Assume 1/3 of all consumers are high-risk and the remaining 2/3 of consumers are low-risk. Consumers know whether they are high-risk or low-risk. The insurance company knows 2/3 of all consumers are low-risk but cannot identify which consumers are low-risk.
If all consumers bought insurance, what price must the insurance company charge to break even in expectation? That is, what price must the insurance company charge so that the expected payments equals the premium?
Which consumers would purchase insurance at that price?
Are there wealth-creating transactions that are not consummated because of the information asymmetry?
If the low-risk consumers were willing to pay $1,500 for the insurance, how would your answers to questions 2 and 3 change?
Using the travel cost method, evalute the annual active use value of this area to the people living in these cities.
What is the economic justification for zoning laws, which restrict the private property owner’s right to do what he or she wants with his or her property?
Holding everything else constant, if interest rates increase:
what will happen to the price level and output? Using the AS/AD model, demonstrate your predictions graphically. what policy might you suggest to the government?
Which component of GDP is the most stable. Look for the smallest change from the year with the smallest contribution to GDP to the year with the largest contribution.
argue the relationship among the marginal cost also the average variable cost also among marginal cost also average cost.
Do you think the U.S. Post Office should be protected from competition What about a pharmaceutical company that has just spent millions to develop a life-saving drug
Trade restrictions usually benefit domestic producers because they increase the domestic price of the good. Trade restrictions usually benefit domestic consumers because they increase the variety of goods available. The benefits of trade restrictions..
why is growth in average labor productivity viewed as a key factor in determining long-run living standards?
A major defense supplier expects to generate additional revenue from its recently won government contract. The company expects the revenue will be $110 million in the first year and the revenue increasing by $2.5 million each year for the next 4 year..
What are the values of the output and the interest rate in 1999 when the money supply is 900? Sketch the AD curve and show what happens when the money supply is decreased below 900 in 1998.
XBC Inc. is planning to buy a new car. Model A costs $22,000 and is expected to have a life of 4 years. Model B costs $35,000 but it is expected to last 6 years. Model B provides a better warranty and it will save the company an average of $1,000 per..
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