Consider the Following Statements When Answering This Question;

question 103

Multiple Choice

Consider the following statements when answering this question;
I. Without fire insurance, the expected value of home ownership for a risk averse homeowner is $W. Insurance companies are willing to sell this homeowner a policy that guarantees the homeowner a wealth of $W.
II. In a neighborhood where the price of houses are identical, the probability of a fire is identical, and the value of damage done by fires is identical, the risk premium for an insurance policy that repays all the cost of the fire damage does not vary across homeowners.

• A) I and I are true.
• B) I is true, and II is false.
• C) I is false, and II is true.
• D) I and II are false.

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Definitions:

LAC Curve

Long-Run Average Cost curve, a graphical representation showing the minimum average cost of production at different levels of output when input prices and technology remain constant.

Constant-Cost Industry

A constant-cost industry is an industry where the costs of production, including inputs, do not change as the industry's output changes.

Demand Shift

Occurs when the entire demand curve moves due to changes in factors other than the price of the good, such as consumer preferences or income.

Supply Increase

A situation where the quantity of a good or service that is available to consumers rises.