Why can car insurance companies charge higher auto rates for new customers than for established customers, all else held constant?
What will be an ideal response?
The insurance company faces an asymmetric information problem with a new customer-they do not know whether the person is a good driver or whether they are careful about how they take care of their car. After a few years of not getting any "bad news" about the driver the insurance company can afford to reduce its rates and still earn zero economic profits.
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In what circumstances would lenders most benefit?
A. When there is an unanticipated decrease in inflation B. When there is an anticipated increase in inflation C. When there is an unanticipated increase in inflation D. When there is an anticipated decrease in inflation
Refer to the accompanying figure. A decrease in supply is represented by a shift from:
A. curve C to curve D. B. curve A to curve B. C. curve D to curve C. D. curve B to curve A.