EBK STUDY GUIDE FOR MANKIW'S BRIEF PRIN
7th Edition
ISBN: 8220103455329
Author: Mankiw
Publisher: CENGAGE L
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Question
Chapter 9, Problem 2QR
To determine
Two problems in insurance market.
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What is an insurance premium?
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.
How does insurance creates wealth?
Chapter 9 Solutions
EBK STUDY GUIDE FOR MANKIW'S BRIEF PRIN
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- 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_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_forwardIs the decision to buy pet insurance strictly an economic decision? Explain.arrow_forward
- Why do the government subsidize insurance companies.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_forwardIf people get higher pay from insurance than their premiums. Will this increase or decrease the death rate of average persons? Is this an example of moral hazard or adverse seletion? How will an insurance company deal with these problems?arrow_forward
- Why do you think the cost varies based on a person’s insurance status?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_forwardHow can insurance companies offer a guarantee to pay for certain medical expenses? How do they determine the appropriate premium to charge?arrow_forward
- Using an appropriate graph explain how tax exemption affects insurance coverage.arrow_forwardHow might adverse selection make it difficult for an insurance market to operate?arrow_forwardDraw the market for risk, where consumers of insurance supply risk and insurance companies demand risk. Show the effects of the individual mandate (the mandate is everyone has to have insurance) in the graph. What will happen to the price of risk?arrow_forward
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