18.7

a. Assume insurance companies cannot distinguish lefties from righties and so offer a single con- tract. If both types are equally likely to buy insurance, what would be the actuarially fair premium for full insurance?

b. Which types will buy insurance at the premium calculated in (a)?

c. Given your results from part (b), will the insurance premiums be correctly computed? Suppose 100 cars will be offered on the used-car market. Let 50 of them be good cars, each worth $10,000 to a buyer, and let 50 be lemons, each worth only $2,000.