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

TYPES OF POLLUTANTS , TYPES OF POLLUTANTS In general the air pollutants c...

TYPES OF POLLUTANTS In general the air pollutants can be sub divided into 2 catexampleories: Primary pollutants and Secondary pollutants Primary pollutants These are the poll

Describe the different views on development, Problem 1: (a) Explain the...

Problem 1: (a) Explain the common set of problems that developing countries usually face. (b) In your opinion, which of the problems described in part (a), are more signifi

Demand for the big mac on the rise, illustrate and explain the changing dem...

illustrate and explain the changing demand for big mac using the indifference curve and budget line

Supply, The table shows the demand schedule of Taylor Swift’s concert ticke...

The table shows the demand schedule of Taylor Swift’s concert ticket. Draw the demand curve for her concert ticket

Supply/demand/cost curves, given short run total cost curve :10q^2+4q=100 a...

given short run total cost curve :10q^2+4q=100 and short run marginal cost MC=20q+4 and market demand Q=100-p what''s the equation of the short run supply curve?

Indifferentces curve, using the tools of an indifference curve and isoquent...

using the tools of an indifference curve and isoquent, highlight on consumption and production in business economics.

Income elasticity, With the recession, average incomes have fallen from $44...

With the recession, average incomes have fallen from $44,375 to $41,720.  Before the recession Groucho's Gizmos sold 600 gizmos a month. As an economics, predict the number of gizm

Assignment, Differentiate between oscillation and damp cobweb model

Differentiate between oscillation and damp cobweb model

Oligopoly, little kona is company that is considering enter a market by big...

little kona is company that is considering enter a market by big brew

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