Explain why insurance/warranty is purchased and how we can model this decision-making process for one of the examples listed below or an example of your choice.

Purchase of warranty for a refrigerator;

Home insurance;

Booking 'flexible' travel tickets (i.e. those which can be amended or cancelled

at no extra cost);

Footballer insuring their legs;

Opera singer insuring their vocal cords.

Assume your reader knows the material covered in Topic 1 of our LI Microeconomics course. You only need to use the case of the 'fair' price of insurance. Focusing on the explanations of your chosen example. Discuss within the following two points:

First point

Explain why insurance/warranty is purchased in the chosen example. How can we model this decision-making process?

Second point

Reflect on Part 1. Your reflection may include answers to some of the following questions: (i) Why did you chose this particular example? (ii) Why do you think this is the best example to use? (iii) Does it relate to your personal experience? (iv) How clearly does it link to the material studied in Topic 2?

(1. Demonstrate knowledge and critical understanding of core microeconomic theories and concepts;

2. Apply core microeconomic concepts to various economic situations, such as producer and consumer optimal decisions, efficiency and welfare, market failure)