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Suppose there are two types of drivers on the road. Speed Racers have a 7% chance of causing an accident per year, while Low Riders have a 2% chance of causing an accident per year. There are the same number of Speed Racers as there are Low Riders. The cost of an accident is $20,000.
a. Suppose the insurance companies know with certainty each driver’s type. What would be the actuarially fair premium that the company would charge each type of driver?
b. Now suppose there is asymmetric information so that the insurance company does not know with certainty each driver’s type. What will happen if the insurance company asks drivers to self-report their type?
c. What will happen if the insurance company admits that it has no idea which drivers are Speed Racers and offers one insurance plan at a price that is based on the average risk across all drivers? Explain the problem of adverse selection in this context.
At what price of food in terms of manufactures would A and B respectively supply food? Would trade take place between A and B in David Ricardo’s world? How many manufactures could B supply?
Was there an ethical breach by Toyota in not coming forth when the problem with acceleration was first reported, or was it simply a series of poor business decisions Or was it both Substantiate your response. Given the current situation
Key concepts to include in your paper--data trends on unemployment, inflation, GDP growth, expansionary fiscal policy tools, FOMC, easy money policy tools and other terms from this class.
A firm that sells headphones at $5 the piece has two plants, one in San Diego (US) and one in Tijuana (Mexico). Both plants make the same product but workers in Tijuana make $32 per day and workers in San Diego make $64 per day. What are the Marginal..
Explain how does economists distinguish between the absolute and relative sizes of the public debt.
In this assignment you will apply consumer choice theory and marginal analysis to business problems. Explain how your own current household budget, tastes and preferences, and future expectations determine how much of each of these products you purch..
If one country has per capita income of $15, 000 and its economic growth rate is 5 percent per year, what will its per capita income be in 10 years? About how many years will it take to catch up to a country where the per capita income is $30, 000 pe..
If Price elasticity of demand for restaurant meals is 2.27 and restaurant meals wants to increase slaes by 45% by illustrate what percentages would the price have to decrease to get the intended resualts.
q.due to rising food costs our vending contractor royalle vending will implement a slight price increase on all
20 years ago John invested $10,000 in a mutual fund. The value of his investment declined by 19% during the first year and then declined another 30% during the second year. 18 more years have passed, and john's cumulative return on the 20 year period..
An engineer borrowed $3000 from the bank, payable in six equal end-of-year payments at 8%. The bank agreed to reduce the interest on the loan if interest rates declined in the United States before the loan was fully repaid. What is the amount of the ..
Given the scenario, your role and the information provided by the key players involved, it is time for you to make a decision.
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