If a risk-averse individual owns a home worth $100,000, and that individual is willing to pay $1,000 for an annual fire insurance policy that covers the entire loss in the event of a fire, then we know that: A.There is a one percent chance that the home will be destroyed by fire in the next year B.There is a greater than a one percent chance that the home will be destroyed by fire in the next year C.There is less than a one percent chance that the home will be destroyed by fire in the next year D.None of the above is correct

The risk averters are those individuals look forward to minimize risks. They can avoid the chances…

Answered: If a risk-averse individual owns a home…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter8: Market Failure

Section: Chapter Questions

Problem 10P

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If a risk-averse individual owns a home worth $100,000, and that individual is willing to pay $1,000 for an annual fire insurance policy that covers the entire loss in the event of a fire, then we know that:

	A.	There is a one percent chance that the home will be destroyed by fire in the next year
	B.	There is a greater than a one percent chance that the home will be destroyed by fire in the next year
	C.	There is less than a one percent chance that the home will be destroyed by fire in the next year
	D.	None of the above is correct

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