Scenario: Choosing Insurance the Ramirez Family Owns Three Cars and Is

question 23

Multiple Choice

Scenario: Choosing Insurance The Ramirez family owns three cars and is considering buying insurance to cover the cost of repairs.They face two possible states: state 1, in which their cars need no repairs and their income available for purchasing other goods and services is equal to $50,000; and state 2, in which their cars need $10,000 worth of repairs and their income available for purchasing other goods and services is reduced to $40,000.The probability of repairs is 10%, while the probability of no repairs is 90%.
(Scenario: Choosing Insurance) Refer to the information in the scenario Choosing Insurance.The premium on a fair insurance policy for the Ramirez family will be:

• A)$0.
• B)$900.
• C)$1,000.
• D)$2,000.

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Definitions:

Marginal Tax Rate

The rate at which an additional dollar of income is taxed.

Vertical Equity

A principle in taxation that says taxpayers with a higher ability to pay should contribute more in taxes.

Marginal Tax Rate

The rate at which an additional dollar of income is taxed, representing the percentage of tax applied to your last dollar of income.

Tax Burden

The total amount of tax paid by an individual, a household, or an organization relative to their income or profits.