-Ashton Has the Utility of Wealth Curve Shown in the Above

question 37

Multiple Choice

-Ashton has the utility of wealth curve shown in the above figure. Ashton owns a sports car worth $30,000, and that is his only wealth. Ashton is a careless driver and there is a 30 percent chance that he will have an accident within a year. If he does have an accident, his car is worthless. Suppose all sports cars owners are like Ashton. An insurance company agrees to pay each person who has an accident the full value of their car. The company's operating expenses are $1,000. What is the minimum insurance premium that the company is willing to accept?

• A) $3,000 per year
• B) $6,000 per year
• C) $10,000 per year
• D) $15,000 per year

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Definitions:

Dodd-Frank Act

A comprehensive piece of financial regulation legislation passed in 2010 in response to the 2008 financial crisis, aimed at reducing risks in the U.S. financial system.

Clayton Act

An antitrust law enacted in the United States to prevent anticompetitive practices and to promote competition.