In the Market for Auto Insurance,in a Pooling Equilibrium

question 1

Multiple Choice

In the market for auto insurance,in a pooling equilibrium,

• A) risky and safe drivers pay the same premium for insurance.
• B) risky drivers pay a larger premium than do safe drivers for insurance.
• C) risky drivers pay a smaller premium than do safe drivers for insurance.
• D) risky drivers cannot obtain insurance.
• E) safe drivers cannot obtain insurance.

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Definitions:

Risk

A potential loss.

Perfect Tender Rule

This rule allows buyers to reject goods that do not precisely meet the quality, quantity, and delivery terms specified in the contract.

Minor Flaws

Small defects or imperfections that do not significantly affect the overall functionality or value of an item.

Rigidity

The quality of being unable to bend or be forced out of shape; not flexible.