Explain why insurance companies usually do not offer earthquake insurance
What will be an ideal response?
Insurance companies diversify their risk by covering many people who mostly have uncorrelated expected losses. However, an earthquake usually causes losses to many people in an area. Thus earthquake losses are very much positively correlated and cannot be easily diversified. Insurance companies do not want to face losses they cannot easily diversify.
Economics
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You would expect the demand for food to be more inelastic than the demand for cookies
Indicate whether the statement is true or false
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