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Consider a Hypothetical Market for Health Insurance

question 34

Multiple Choice

Consider a hypothetical market for health insurance. Fifty percent of the buyers of insurance are low-cost, healthy individuals who incur an average of $3,000 in healthcare costs each year, and the other fifty percent are high-cost, unhealthy individuals who incur an average of $9,000 in healthcare costs each year. Buyers know whether they are a low-cost type or a high-cost type. However, sellers of insurance do not know if a particular parson is a low-cost or high-cost type; they only know that half of the buyers are low-cost types, and half of the buyers are high-cost types. Healthy buyers would be willing to pay at most $4,000 for an insurance policy, and unhealthy buyers would be willing to pay at most $10,000.Which of the following statements is true?

Grasp the concept of NAFTA and rules of origin in trade agreements.

Understand the importance of knowing competitors’ prices and anticipating market movements.

Learn the factors that influence demand and how these factors are interrelated.

Grasp the concept of demand elasticity and its impact on pricing strategies.

Definitions:

Level of Activity

The volume or scale of operation in a business, often influencing costs and efficiency, such as the number of units produced or sold.

Cost of Unused Capacity

The costs incurred for not utilizing production or service capacity to its fullest potential.

Period Expense

Costs that are not directly related to production and are charged as expenses in the period they occur.

Predetermined Overhead Rate

A rate calculated by dividing estimated overhead costs by an estimated activity base, used to allocate overhead costs to products or services.