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

question 46

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. Both Steve and the insurance company will gain if the insurance premium is

• A) $900.
• B) $1,200.
• C) $1,600.
• D) $700.

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Definitions:

Compliance

The act of conforming to and following rules, standards, or laws imposed by an authority, regulatory body, or agreement.

Administrative Agency

A government body responsible for the oversight and administration of specific functions, such as regulations or the execution of laws.

Final Rule

A regulatory or policy statement issued by an administrative agency that has completed the proposal, consideration, and public comment stages, now serving as a definitive ruling.

Notice-And-Comment Rulemaking

A procedure that requires federal agencies to publish proposed rules in the Federal Register and allow the public to comment before they can be enacted.