Steve owns a motorcycle valued at $5,000, and that is his only asset. There is a 5 percent chance that Steve will have an accident within a year. If he does have an accident, his motorcycle is worthless
Steve's utility of wealth curve is shown in the figure above. An insurance company agrees to pay Steve the full value of his motorcycle in case of an accident if he buys the company's insurance policy. The company's operating expenses are $500 per policy. With no insurance, Steve's expected wealth is A) $4,000.
B) $4,500.
C) $3,500.
D) $5,000.
B
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If an emissions tax is imposed but it is less than the optimal Pigouvian tax, then:
a. the marginal social benefit of pollution is greater than the marginal social cost of pollution. b. the marginal social cost of pollution is greater than the marginal social benefit of pollution. c. total surplus will be maximized. d. the amount of pollution will be less than the socially optimal amount.
What are liability rules?
What will be an ideal response?