-Steve Owns a Motorcycle Valued at $5,000 and That Is

question 131

Multiple Choice

-Steve owns a motorcycle valued at $5,000 and that is his only asset. There is a 5 percent chance that Steve will have an accident within a year. If he does have an accident, his motorcycle is worthless. Steve's utility of wealth curve is shown in the figure above. An insurance company agrees to pay Steve the full value of his motorcycle in case of an accident if he buys the company's insurance policy. The company's operating expenses are $500 per policy. What is the minimum premium that the insurance company will accept?

• A) $1,000
• B) $2,000
• C) $500
• D) $1,500

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Definitions:

Culture-Based Argument

A culture-based argument is a reasoning or persuasive technique that relies on cultural norms, values, beliefs, or practices to support a position or viewpoint.

Urban Underclass

A segment of society, often located in inner cities, that is trapped in a cycle of poverty and faces considerable social and economic disadvantages.

Assimilation Perspective

A view focusing on how minority groups gradually adopt the patterns and norms of a dominant culture, losing their original cultural identity.

Assimilation

A process by which a person or a group's language and, or culture come to resemble those of another group, often losing the original cultural identity.