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

Graded discussion board, The Case: In Pakistan, sugarcane, wheat, rice and ...

The Case: In Pakistan, sugarcane, wheat, rice and cotton accounted for 90% of the value added in crops and 6% of GDP in the last fiscal year but the average yield of these crops is

Deviation, Deviation - Difference between the expected and actual payof...

Deviation - Difference between the expected and actual payoff -  Adjusting for the negative numbers -  The standard deviation measures square root of average of squa

Examine the claim of the investigator, Problem 1: Write short notes on ...

Problem 1: Write short notes on all of the following: (a) Log Linear regression model (b) Lin-Log regression model (c) Individual versus Overall Significance Probl

Explain the various forms of economic integration, Question: (a) Descri...

Question: (a) Describe the two major developments which have led in the adoption of Import Substitution Industrialisation by Developing Countries in the 1940s/50s. (b) Ill

Can you explain cost benefit analysis, Q. Can you explain Cost benefit anal...

Q. Can you explain Cost benefit analysis? A term used to explain analysis, which seeks to quantify in money terms as many of the costs and benefits of a policy or project as po

What is capital requirements directive, In relation to banking, Basel II, t...

In relation to banking, Basel II, the Capital Requirements Directive (CRD) was implemented in January 2008. The CRD requires stricter capital treatment of a bank's risk transfer op

Effects of weight loss, Effects of weight loss A healthy body is required n...

Effects of weight loss A healthy body is required not only for the sake of health, but also for maintaining the standard frame of a body. A person experiencing the problem of weigh

What is meant by labor force, What is meant by labor force?    In econom...

What is meant by labor force?    In economics the labor force is the group of people who have a potential for being employed. Normally, the labor force having of everyone above

Describe the theory of effective demand, Q. Describe the Theory of effectiv...

Q. Describe the Theory of effective demand ? Effective Demand:Theory of effective demand was developed separately in the 1930s by Michal Kalecki andJohn Maynard Keynes. It eluc

Discretionary fiscal policy, Discretionary Fiscal Policy: Some government t...

Discretionary Fiscal Policy: Some government taxing and spending programs can be adjusted by government in response to changing economic circumstances. These discretionary measures

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