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

Calculate income elasticity of demand, When Alex's income increased from $3...

When Alex's income increased from $3,000 to $5,000, he increased his consumption of bagels from 4 to 8 a month and decreased his consumption of donuts from 12 to 6 a month. Calcula

Demand analysis, all information about demand analysis

all information about demand analysis

Micro, 2. a. Suppose the demand for saline solution is perfectly inelastic ...

2. a. Suppose the demand for saline solution is perfectly inelastic for contact lens wearers. If the government imposes a tax on saline solution, what occurs? Be sure to tell what

Total, Compare and contrast the different measures of revenue

Compare and contrast the different measures of revenue

Graphical methods - trend projection methods, A trend line can be fitted th...

A trend line can be fitted through a series graphically. Old values of sales for different areas are plotted on a graph and a free hand curve is drawn passing through as many point

What do you meant by relative poverty, Q. What do you meant by Relative Pov...

Q. What do you meant by Relative Poverty? Relative Poverty: A measure of poverty based on an individual or family's relative income compared to overall average level of income

Working capital, Working Capital: A business requires a certain revolving f...

Working Capital: A business requires a certain revolving fund of finance to pay for regular purchases of initial labour, raw materials and other inputs to production. Working capit

Name the five types of capital, Name the five types of capital. The fiv...

Name the five types of capital. The five types of capital are:  natural capital, manufactured capital, human capital, social capital and financial capital.

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