Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (2nd Edition)
2nd Edition
ISBN: 9780134641904
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 16, Problem 2P
(a)
To determine
Whether insurance company would suffer a loss if service was offered for
(b)
To determine
Reason for driving out of low risk people and total surplus.
(c)
To determine
Total surplus when a price of
(d)
To determine
Nature of the individual mandate: Equity or efficiency.
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In the field of financial management, it has been observed that there is a trade-off between the rate of return that one earns on investments and the amount of risk that one must bear to earn that return.
a) Draw a set of indifference curves between risk and return for a person that is risk-averse (a person that does not like risk).
In the mid-1990s, the state of New Jersey revised its rules for the individual insurance market and began requiring that insurers charge the same premiums for the same coverage to all applicants. Assuming that insurers had previously used medical underwriting, which of the following is a predictable consequence of adverse selection?
1)
Insurance becomes less attractive to the healthiest individuals, so fewer of them buy it
2)
Insurers’ average costs of providing coverage increase because of a changing risk pool
3)
The average age of those buying in the individual market goes up
4)
All of the above
BPO Services is in the business of digitizing information from forms that are filled out by hand. In 2006, a big client gave BPO a distribution of the forms that it digitized in house last year, and BPO estimated how much it would cost to digitize each form.
Form Type
Mix of Forms
Form Cost
A
0.5
$3.00
B
0.5
$1.00
The expected cost of digitizing a form is
.
Suppose the client and BPO agree to a deal, whereby the client pays BPO to digitize forms. The price of each form processed is equal to the expected cost of the form that you calculated in the previous part of the problem.
Suppose that after the agreement, the client sends only forms of type A.
The expected digitization cost per form of the forms sent by the client is
. This leads to an expected loss of
per form for BPO. (Hint: Do not round your answers. Enter the loss as a positive number.)
Chapter 16 Solutions
Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (2nd Edition)
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