Principles Of Microeconomics (book With Myeconlab With Pearson Etext Access Card)
12th Edition
ISBN: 9780134435039
Author: CASE, Karl E.; Fair, Ray C.; Oster, Sharon E.
Publisher: PEARSON
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Chapter 17, Problem 1.3P
To determine
Was the purchase of the fire insurance for the house is a mistake when at the end the house is not caught fire.
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Students have asked these similar questions
Many people in the property and liability insurance industry complain about the “automobile problem.” The “automobile problem” consists of a series of interrelated problems. What factors have combined to produce a problem in the automobile insurance area?
Insurance is valuable because
a-most individuals are not rational.
b-individuals do not know all possible states of the world.
c-individuals experience diminishing marginal utility.
d-individuals have imperfect information and about the probability of adverse events.
When you choose to buy insurance, are you speculating? When you choose not to buy insurance, are you also speculating? Explain.
Chapter 17 Solutions
Principles Of Microeconomics (book With Myeconlab With Pearson Etext Access Card)
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- If you understand the principles of insurance, you will understand why it probably makes sense to purchase insurance to guard against large losses, like the destruction of a home you own, but probably does not make sense to purchase insurance to guard against small losses, like the failure of a TV you buy.arrow_forwardWhat would be the highest price (premium) that she would be willing to pay for an insurance policy that fully insures her against the flooding damage?arrow_forwardIn the United States, you have a lower likelihood of being killed in a terrorist incident than dying in which of the following ways? A, Being struck by lightening B. Giving birth C. All of the above D.Drowning in your bathtub E.Being shot by a toddler F.Diarrheaarrow_forward
- Ebony Reigns owns a studio that would cost ¢ 120,000 to replace should it ever be destroyed by fire. There is a 25% chance that the studio could be destroyed by fire during the course of the year. If the fire occurs, Ebony Reign's studio will be worth only ¢ 60,000. An insurance company has offered Ebony a false insurance policy that requires her to pay a yearly premium of ¢ 15,000 in the good state of nature (no fire) Ebony has fully insured her studio to eliminate the risk. Assuming that Ebony Reigns is risk averse has another wealth answer the following questions: A) Calculate the variance of the value of Ebony's studio with fair insurance. B) Is Ebony better off with the fair insurance ? Why ?arrow_forwardEver since the Covid-19 pandemic hit the economy the price of gold has been sky high .Today price per gram of Gold is 5291tk. Imagine yourself as a risk averse investor, explain why you would be more or less willing to buy gold under the following circumstances: a) Prices in the gold market become more volatile. b) An additional tax is imposed on all Government bonds. c)Due to Covid-19 epidemic, the economy experiences a recession. d) You just inherited 1000000tk.arrow_forwardPeople tend to view car travel as being safer than airplane travel, but a person is how many times more likely to die from a car accident than from an airplane crash?arrow_forward
- Both types of insurance customers receive the same insurance policy. Choice 1 of 2:True Choice 2 of 2:Falsearrow_forwardPlace an “M” beside the items in the following list that describe a moral hazard problem and an “A” beside those that describe an adverse selection problem a. A person with a terminal illness buys several life insurance policies through the mail. b. A person drives carelessly because she has automobile insurance. c. A person who intends to torch his warehouse takes out a large fire insurance policy. d. A professional athlete who has a guaranteed contract fails to stay in shape during the off season. e. A woman who anticipates having a large family takes a job with a firm that offers exceptional child care benefits.arrow_forwardIf people get higher pay for insurance than their premium will this increase or decrease the death rate of average persons? Is this an example of a moral hazard or harvest selection. How will an insurance company deal with this problemarrow_forward
- Robert decides to start working for the local ridesharing company. He has a large 12-passenger van and thinks he will be in big demand at the airport. He tells his personal car insurance company that he is driving for a ridesharing company, and he needs some additional insurance. He is denied additional coverage. Why? There is no such thing as ridesharing insurance. He lives in a state that doesn’t offer ridesharing insurance. The city he lives in is too small for him to qualify for ridesharing insurance. Many insurance companies will not insure high-occupancy vehicles under their ridesharing policies.arrow_forwardMisty is single and has chosen Plan Q. Misty has not used her health insurance yet this year. Misty goes to the hospital for some services and her portion of the bill is $5,000. How much did Misty’s insurance pay for their portion of the bill?arrow_forwardWhich of the following is NOT a commitment device? Select one: a. A non-refundable advance payment to reserve a room at a resort. b. A manufacturer's 2-year agreement to fix, at no cost to you, anything that breaks on your computer. c. A pre-nuptial agreement that provides for a large penalty in the event a spouse has an affair. d. High fines for illegal parking on campus.arrow_forward
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