Microeconomics (13th Edition)
13th Edition
ISBN: 9780134744476
Author: Michael Parkin
Publisher: PEARSON
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Question
Chapter 20.2, Problem 3RQ
To determine
On insurance deals worth gaining for buyers and sellers.
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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.
What benefit do people get from the market forinsurance? What two problems impede the insurancemarket from working perfectly?
When you choose to buy insurance, are you speculating? When you choose not to buy insurance, are you also speculating? Explain.
Chapter 20 Solutions
Microeconomics (13th Edition)
Ch. 20.1 - Prob. 1RQCh. 20.1 - Prob. 2RQCh. 20.1 - Prob. 3RQCh. 20.1 - Prob. 4RQCh. 20.2 - Prob. 1RQCh. 20.2 - Prob. 2RQCh. 20.2 - Prob. 3RQCh. 20.2 - Prob. 4RQCh. 20.3 - Prob. 1RQCh. 20.3 - Prob. 2RQ
Ch. 20.3 - Prob. 3RQCh. 20.3 - Prob. 4RQCh. 20.4 - Prob. 1RQCh. 20.4 - Prob. 2RQCh. 20.4 - Prob. 3RQCh. 20 - Prob. 1SPACh. 20 - Prob. 2SPACh. 20 - Prob. 3SPACh. 20 - Prob. 4SPACh. 20 - Prob. 5SPACh. 20 - Prob. 6SPACh. 20 - Prob. 7APACh. 20 - Prob. 8APACh. 20 - Prob. 9APACh. 20 - Prob. 10APACh. 20 - Prob. 11APACh. 20 - Prob. 12APACh. 20 - Prob. 13APACh. 20 - Prob. 14APACh. 20 - Prob. 15APACh. 20 - Prob. 16APACh. 20 - Prob. 17APACh. 20 - Prob. 18APACh. 20 - Prob. 19APACh. 20 - Prob. 20APACh. 20 - Prob. 21APACh. 20 - Prob. 22APACh. 20 - Prob. 23APA
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- In an insurance system, would you expect each person to receive in benefits pretty much what they pay in premiums or is it just that the average benefits paid will equal the average premiums paid?arrow_forwardexplain the difference between moral hazard and adverse selection using the example of health insurance. what are the consequences of each of them for the functioning of private insurance markets?arrow_forwardDetail a risk that could be transferred to an insurance company, but isn’t utilized as often as the most common ones mentioned. Explain the risk that can be transferred, when it’s used, and why it isn’t.arrow_forward
- In the context of asymmetric information, adverse selection and moral hazard, how does marketFailure occur? (Make reference to the insurance or financial market)arrow_forwardExplain what is the risk premium?arrow_forwardHow can you use Microsoft Excel and your agility and problem solving skills to understand the level of risk involved in selecting the appropriate insurance to achieve your goals. How will problem solving, productivity, technology, and agility help you achieve your personal and professional goals?arrow_forward
- The ability of insurance to spread risk is limited bya. risk aversion and moral hazard.b. risk aversion and adverse selection.c. moral hazard and adverse selection.d. risk aversion onlyarrow_forwardDiscuss the differntaition between Neccesity and Luxury expendses in life. Why Islam discourage luxury life style? Discuss the role of Insurance in managing your investment risks.arrow_forwardFrom utility theory, the demand for insurance depends on the level of risk aversion (i.e. how much you hate uncertainty), the cost of insurance (i.e. if it is within your willingness to pay), as well as wealth. Can you think of anything else that affects demand for insurance?arrow_forward
- Why do the government subsidize insurance companies.arrow_forwardAs an investor, how do you diversify against risk?arrow_forwardYou want to buy a life insurance so that your family will receive $25,000 per year in interest. The interest rate expected from banks is 11%, while inflaation rate is expected to be 4% per year. a. What is the effective interest rate? (7.5%, 6.73%, 3.6%, or 2.75%) b. How much insurance should you buy? ($333,333, $694,444, $371,471, or $909,090) provide complete solution pleasearrow_forward
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