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Demand Function
The function capturing the dependent relationship between the price people are willing to pay for products or service and other factors related to that product or service. These other factors include the cost associated with making the product, the technology employed in making the goods, the number of vendors operating in a market, the price at which competing vendors are providing same products, and the supply of the product available to clients.
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 p H =0.5 and p L
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