Competitive equilibrium, Microeconomics

Assignment Help:

Let Consider the following insurance market. There are two states of the world, B and G, and two types of consumers, H and L, who have probabilities pH =0.5 and pL =0.25 (high and low risk) simultenaoulsy of being in state B. They have common endowment e=(eG,eB) = (£900, £100). The individuals have expected utility preferences over state-contingent consumptions c=(cG,cB), with common utility function u(ci)=ln(ci), where i=B,G. Insurance firms are risk-neutral profit maximisers and offer contracts in exchange for the individuals' endowments.

Assume the market is competitive.

a)  Outline the definition of a competitive equilibrium of this market and describe why every contract, offered by every firm, must earn zero profit in equilibrium.                                                                                                                                

b)  Assume the information concerning individuals' types is symmetric, but void. It is commonly known, though, that the proportion of low risk consumers is 0.4. Derive the equilibrium set of contracts.    

 


Related Discussions:- Competitive equilibrium

Help, Calculate the number of moles in 15.8 grams of aluminum hydroxide

Calculate the number of moles in 15.8 grams of aluminum hydroxide

Joy Land Toys, I need help with a question that has been posted on here alr...

I need help with a question that has been posted on here already.

Growth rate, how to calculate growth rate in closed economy

how to calculate growth rate in closed economy

Measuring the economic value of education , Measuring the Economic Value of...

Measuring the Economic Value of Education A review of research works regarding the economic value of education shows that it developed in four different directions. They a

Comparative economics system, Identify path of growth and development to ec...

Identify path of growth and development to economic maturity.

Market , What is a Market? Markets A geographically stated area wh...

What is a Market? Markets A geographically stated area where buyers and sellers interact or communicate to decide the price of a product or a series of products. Marke

Introduction to macroeconomics , a. The diagram above depicts the current p...

a. The diagram above depicts the current position of a hypothetical economy using the Keynesian Income/Expenditure approach. If national income is currently at Y1 explain why this

Market-friendly reforms, Market-Friendly Reforms: One main shortcoming...

Market-Friendly Reforms: One main shortcoming of present development cooperation is that recipients of development cooperation is that recipients of development finance are d

Socio economic conditions, Socio Economic conditions of country also affect...

Socio Economic conditions of country also affect the sales forecasting. They may include total national income per capita income standard of living of the masses, education, inflat

What learning curve implies?, Learning curve implies:  1) The requiremen...

Learning curve implies:  1) The requirement of labor falls per unit.  2) Costs will be high at 1 st and then will fall with learning.  3) After eight years the labor requ

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd