Mandatory Insurance. Consider a city with 100 drivers and a perfectly competitive market for automobile insurance. The demand curve for auto insurance is linear and negatively sloped, with a maximum price of $2,000 and a slope of - $10 per customer. At the initial price of $1,500, half the city's drivers (50 drivers) buy insurance. The price is just high enough to cover all the costs of providing insurance, including a 50 percent premium to cover the costs associated with uninsured drivers. Suppose the city makes auto insurance mandatory. 1.) Use the line drawing tool to draw and label the demand line as specified above; 2.) Use the point drawing tool to mark the initial equilibrium point (Eo); and 3.) Use the point drawing tool to mark the new equilibrium point (Enew). Carefully follow the instructions above, and only draw the required obiects

Mandatory Insurance. Consider a city with 100 drivers and a perfectly competitive market for automobile insurance. The demand curve for auto insurance is linear and negatively sloped, with a maximum price of $2,000 and a slope of - $10 per customer. At the initial price of $1,500, half the city's drivers (50 drivers) buy insurance. The price is just high enough to cover all the costs of providing insurance, including a 50 percent premium to cover the costs associated with uninsured drivers. Suppose the city makes auto insurance mandatory. 1.) Use the line drawing tool to draw and label the demand line as specified above; 2.) Use the point drawing tool to mark the initial equilibrium point (Eo); and 3.) Use the point drawing tool to mark the new equilibrium point (Enew). Carefully follow the instructions above, and only draw the required obiects

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter16: Information, Risk, And Insurance

Section: Chapter Questions

Problem 20CTQ: A website offers a place for people to buy and sell emeralds, but information about emeralds can be...

See similar textbooks

Similar questions

A consumer’s demand for a medical service is as follows: Q = 100 – P, where P is theout-of-pocket price she actually faces. Assume this medical service has a market price of $70.This consumer is considering four different insurance options: no insurance, full insurance, a 50% coinsurance plan, and a copayment plan with a $25 co-pay Calculate the deadweight loss under each insurance scheme and show iton each graph. What do you observe?
2. A consumer’s demand for a medical service is: Q = 100 - ?? where ?? is the out-of-pocket price she/he actually faces. She/he is considering four different insurance options: uninsurance, full insurance, a 50% coinsurance plan, and a copayment plan with a $25 copay. a. Assume this service has a list price of ??= $70. Calculate Q under each insurance plan. b. Calculate the amount of social loss under each insurance plan.
Suppose the demand for anxiety medication prescriptions is given by P = 300 – Q. Suppose the marginal cost for a prescription of anxiety medicine is constant at $100 per prescription. a. What is the quantity demanded in the absence of any insurance coverage for anxiety medication? b. Now, suppose there is full insurance coverage for anxiety medication (i.e. no cost-sharing at all). What is the new quantity demanded? c. Finally, suppose insurance covers anxiety medication, but there is 20% coinsurance, meaning that individuals must pay 20% of the cost of anxiety medication out of pocket. What is the new quantity demanded? d. Under the insurance structure given in part (c), what is the deadweight loss associated with the presence of insurance coverage?
Suppose that the typical inverse demand for trips to the dentist by a patient is given by p=1000-200q. Assume that there are lots of patients. Dentists charge $400 per visit, either to the insurer or to the patient, and this represents their average cost per visit. If there is an insurer, it charges a premium which comes straight out of the wealth of consumers. Assume that the premium is fair and reflects use of dental visits by all consumers, not just the specific consumer. (a) Find the optimal number of visits that would happen in order to maximize consumer welfare less the costs of dentistry. (b) Suppose that the insurer covers 50% of the dental cost. Does this lead to an increase/decrease in consumer welfare (i.e. the sum of consumer surplus less premiums)? Show how much.
Suppose you have two persons, one with more elastic demand for medical care than the other. If they both obtain identical health insurance coverage (or both have their % of costs paid by insurance increased), whose demand will be affected most? Given what you know about relative demand for MC for well vs. ill individuals, more educated vs. less educated persons, and wealthy vs. less wealthy individuals, which of each pair will have the greatest increase in demand under health insurance?
Suppose that there are 2 types of plans available to you. Plan A has a deductible of $500, with 10 percent co-insurance rate for many health care services. Plan B has a deductible fo $1000, with 35 percent co-insurance rate. Plan A costs $200 per month in premiums while Plan B costs $80. Discuss characteristics of people who would choose Plan A versus Plan B. Assuming that both plan types exist in the market, who would likely choose Plan B over Plan A? What plan would you choose?
A website offers a place for people to buy and sell emeralds, but information about emeralds can be quite imperfect. The website then enacts a rule that all sellers in the market must pay for two independent examinations of their emerald, which are available to the customer for inspection. How would you expect this improved information to affect demand for emeralds on this website? How would you expect this improved information to affect the quantity of high-quality emeralds sold on the website?
How can healthcare systems address the inelastic demand for emergency care to prevent unchecked and exorbitant pricing for patients?
1) Suppose incomes at sick-state and healthy-state become perfect substitutes and the probability to become sick is 0.3. Using a diagram, explain which insurance contract (full or partial) will maximize this client’s utility.
Economics Use the following information to determine the costs to you and/or to the insurance company for the following occurrences:1) You have $500 per person Wellness Benefit.2) You have a $500 İndividual Deductible and your family (spouse and children) has a $500 Family Deductible.3) You have a $10,000 annual Maximum Family Out-of- Pocket expense provision.4) Once you have met your Individual or Family Deductible, your insurance will pay 80% of the expenses and you will pay 20% as your co-pay.Unless the occurrence is a Wellness expense, you and/or your family have to meet their deductibles first before insurance will pay anything. Example:Assume that you have met your deductible, and you go to the Emergency Room for a large cut on your shin which required cleaning, 20 stitches, a tetanus shot, and antibiotics. (80/20 plan)Total Charges = $2,500 totalYour Responsibility = $2,500*.20 = $500 (goes toward your Max Out of Pocket)Insurance Responsibility = $2,500*.80 = $2,000 Question:…
The lower the deductible on an insurance policy, the higher the premiums. True or False
In Hayward, there are 100 people who want to sell their used cars. Everybody knows that 50 of these cars are "lemons" and 50 of these cars are "peaches." The problem is that nobody except the original owners know which are which. Owners of lemons will be happy to get rid of their cars for any price greater than $200. Owners of peaches will be willing to sell them for any price greater than $1,500 but will keep them if they can't get $1,500. There are a large number of buyers who would be willing to pay $2,500 for a peach but would pay only $300 for a lemon. When these buyers are not sure of the quality of the car they buy, they are willing to pay the expected value of the car, given the knowledge they have. If all 100 used cars in Hayward were for sale, how much would buyers be willing to pay for a used car? Type the number without the thousands separator or $ sign.