Assume That the Loading Fee of an Insurance Policy Increases

question 6

Essay

Assume that the loading fee of an insurance policy increases from $800 per policy to $1,000 and that, as a result, consumers reduce their demand for insurance, and therefore their premiums, from $10,500 to $9,500. What is the price elasticity of demand?

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Definitions:

Negative Externalities

Costs experienced by third parties due to the actions of others that are not reflected in market prices.

Clayton Act

A U.S. antitrust law, adopted in 1914, aimed at protecting competition by prohibiting certain actions that lead to anticompetitiveness.

Celler-Kefauver Act

A U.S. law enacted in 1950 to amend the Clayton Act, aiming to prevent anti-competitive mergers and acquisitions by prohibiting the acquisition of assets if the effect reduces competition.

Mergers

The combination of two or more companies into one entity, often to enhance market share and reduce competition.