Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 27, 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 27 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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- How 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_forwardRobert 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_forwardWhen you choose to buy insurance, are you speculating? When you choose not to buy insurance, are you also speculating? Explain.arrow_forward
- Is the decision to buy pet insurance strictly an economic decision? Explain.arrow_forwardWhy do the government subsidize insurance companies.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_forwardHow can insurance companies offer a guarantee to pay for certain medical expenses? How do they determine the appropriate premium to charge?arrow_forwardHow we know that policies offered by private insurance companies are worse than fair game?arrow_forward
- How 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_forwardWhat are some strategies for reducing adverse selection in insurance markets? What sorts of problems do these solutions cause?arrow_forward
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