Assume you have 150,000 worth of assets (i.e. savings, car, property, etc.). You drive your car to school/university every day and there is a 1 in 10 (or 10 per cent) chance per year that you will be involved in an accident that results in your car being a write-off. Assume the market value of the car is 20,000 and remains unchanged. You could take out a full insurance policy for the year that pays out the full 20,000 market value of the car if you have the accident. Assume the insurance company has many customers with exactly the same assets as you and who all face the same risk of being involved in a similar accident.

1. 1. What is the break-even/actuarially fair insurance premium in this case?
   2. Draw a diagram to illustrate your answers to the previous questions.
2. 3. Assume the administration costs for the insurance company are 5 per customer. Explain why mutually beneficial trade is possible at a particular price for the insurance policy. Refer to consumer and producer surplus in your answer.