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Suppose there are two types of people who need health insurance; high-risk and low-risk consumers. High-risk consumers have a relatively high probability of needing expensive medical care and on average incur $2,000 of medical expenses per year. The high-risk consumers would be willing to pay up to $2,500 for insurance that covers all their medical bills. Low-risk consumers would be willing to pay up to $1,400 for full-coverage insurance and on average would incur on average $1,200 in medical bills. Assume 1/3 of all consumers are high-risk and the remaining 2/3 of consumers are low-risk. Consumers know whether they are high-risk or low-risk. The insurance company knows 2/3 of all consumers are low-risk but cannot identify which consumers are low-risk.
If all consumers bought insurance, what price must the insurance company charge to break even in expectation? That is, what price must the insurance company charge so that the expected payments equals the premium?
Which consumers would purchase insurance at that price?
Are there wealth-creating transactions that are not consummated because of the information asymmetry?
If the low-risk consumers were willing to pay $1,500 for the insurance, how would your answers to questions 2 and 3 change?
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The agreement required the tobacco companies to pay the states $246 billion over twenty- five years. The tobacco companies are going to have raise prices to be able to pay the states.
What is the present worth of each of the deals? Your company uses a MARR of 15% for this sort of analysis.
Which of the following is an example of an autonomous agency of the United Nations? Which of the following is provided under the Foreign Sovereign Immunities Act? Throughout Christianity, divine and natural laws have been issued in the form of ______..
What are the key determinants of the price elasticity of demand for meals served at high-end restaurants?
Participate in a discussion with your classmates regarding where you see the U.S. economy in its business cycle right now, as based on the economic concepts in the textbook. Now that we learned that the real business cycle results from fluctuations i..
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The optimal rate of pollution occurs where
Explain the viewpoints of classical and Keynesian economists. How did the economy that existed at the time of these theories influence them? Which theory is more appropriate for the economy today? Why?
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