If an Insurance Company Selects Its Risks from the Population

question 20

Multiple Choice

If an insurance company selects its risks from the population in an adverse way, the company will probably

• A) earn extra-normal profits
• B) suffer severe losses
• C) barely break even

---

Definitions:

Normal Good

A good for which demand increases as consumer income rises, and falls when consumer income decreases.

Income Rises

An increase in the amount of money earned by individuals or households, which can impact their purchasing power and consumption habits.

Marginal Rate

The marginal rate refers to the rate at which one quantity changes with a slight increase in another quantity, often used in economics to discuss changes in tax, cost, or benefit.

Indifference Curve

A graph showing different combinations of two goods among which a consumer is indifferent, reflecting preferences for consumption.