Whether or not a pooling equilibrium exists in a competitive market with adverse selection depends on what fraction of consumers is of the high cost type and what fraction is of the low cost type.
Answer the following statement true (T) or false (F)
True
Rationale: The pooling equilibrium must offer insurance at zero-profit prices when everyone is buying at the same price. The pooling contract must furthermore be preferable to low cost consumers to a restricted lower-priced policy set at a benefit level that is sufficiently low to keep high cost types from demanding any at that price.These conditions are more likely to be satisfied when there are relatively few low-cost types.
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