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

Major air pollutants, Major air pollutants can be sub divided into 2 catexa...

Major air pollutants can be sub divided into 2 catexampleories: Inorganic gases and particular gases. (A) Inorganic gases 1. Carbon monoxide (CO) CO is a colourless, lethal gas

Distinguish between economic growth and economic development, Question 1: ...

Question 1: (a) Describe the different forms that foreign aid may take. (b) Does foreign aid lead to economic growth? Discuss. Question 2: (a) Distinguish between ec

HDI, how to write an assignment on Human development index

how to write an assignment on Human development index

Educational planning and economic growth, Normal 0 false fals...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Discuss the advantages and disadvantages of rate regime, Discuss the advant...

Discuss the advantages and disadvantages in having a managed exchange rate regime. Advantages of a managed/fixed exchange rate Predictability and certainty a) Fi

Short run, critically evaluate the two main utility theories

critically evaluate the two main utility theories

Demand and supply, discuss and illustrates the following terms with diagra...

discuss and illustrates the following terms with diagrams1.inferior goods.2.normal goods,3.giffen goods

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