Suppose That There Are Two Regions of a State,one Where

question 33

Essay

Suppose that there are two regions of a state,one where car theft is high and the other where car theft is very low.The state allows insurance companies to charge different premiums (which include insurance against vehicle theft)based in part on where the driver lives.Suppose the government is considering a policy change that would make it illegal to charge higher premiums to people in the areas of higher car theft.
(a)Assume that all drivers in the state are very risk averse when it comes to insurance against theft and that the insurance firms offer one rate to all drivers in that state.What kind of equilibrium will result? Who,if anyone,will pay a risk premium? Who will be better off,and who will be worse off?
(b)What might happen if the drivers in the areas of low car theft were not very risk averse?

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Financing

The process of providing funds for business activities, making purchases, or investing.

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The lowest amount of cash that a company or individual seeks to maintain on hand to meet immediate expenses.

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Basic materials used in the production process, which are transformed into finished goods.

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Units of product that have been completed but not yet sold to customers.