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

Principle of economics , A city government regulates taxi fares.  It also l...

A city government regulates taxi fares.  It also limits the number of taxicabs (by licensing), and has not changed the limit on cabs for lot of years.  At one time vacant taxis wer

Ppf, negative slope on ppf represents what?

negative slope on ppf represents what?

Economics for money, 1. Discuss how banks make money, and are structured in...

1. Discuss how banks make money, and are structured in respect to Asset, Liability and Capital Management – give examples.

Physical chemistry, Calculate the enthalpy change for stepE. that is for th...

Calculate the enthalpy change for stepE. that is for the reaction: Na(s)+ water (arrow) Na(ion)+ OH(ion)+ Hydrogen (g)

Macroeconomics, The Wealth of Nations of Modern Economies When the federal ...

The Wealth of Nations of Modern Economies When the federal government uses expenditures to stimulate the economy, it changes not only the present but the future as well. Question

Growth of production, GROWTH OF PRODUCTION: The performance of Indian ...

GROWTH OF PRODUCTION: The performance of Indian agriculture during more than half a century of planned economic development can be broadly characterised by three distinct phas

Credit squeeze, Credit Squeeze:At times private banks become reluctant to i...

Credit Squeeze:At times private banks become reluctant to issue new credit andloans, frequently because they are worried about risk of default by borrowers. This is common at the t

Question, Briefly discuss the components of macroeconomics system with suit...

Briefly discuss the components of macroeconomics system with suitable explanation

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