Expected utility theory predicts that individuals will fully insure in actuarily fair markets so long as their tastes are state-independent. How might adverse selection result in some individuals under-insuring?
What will be an ideal response?
Under adverse selection, a separating equilibrium will have the following feature: Low cost types will be offered a menu of insurance contracts that is actuarily fair but not complete -- i.e. full insurance will not be offered at rates that are actuarily fair for low cost consumers because this would draw high cost consumers into the market.
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If intended investment is $500 billion, and actual investment is $620 billion, then we know that
a. consumption is $620 billion b. unwanted inventory is $620 billion c. consumption is $120 billion d. unwanted inventory is $120 billion e. saving is $500 billion
The marginal cost curve intersects the average variable cost curve at the _______ value of the average variable cost curve.
A) maximum B) minimum C) zero D) average