option 1 - will or will not

option 2 - will or will not

5. Individual Problems 20-4 Suppose that every driver faces a 4% probability of an automobile accident every year. An accident will, on average, cost each driver $11,000. Suppost there are two types of individuals: those with $66,000.00 in the bank and those with $5,500,00 in the bank, Assume that individuals with $5,500.00 in the bank declare bankruptcy if they get in an accident. In bankruptcy, creditors receive only what individuals have in the bank. Assume that both types of individuals are only slightly risk averse. In this scenario, the actuarially falr price of full insurance, in which all damages are paid by the insurance compary, is Assume that the price of insurance is set at the actuarially fair price. At this price, drivers with $5,500.00 in the bank likely buy insurance, and those wit $66,000,00 in the bank likely insurance. (Hint: For each type of driver, compare the price of insurance to the expected cost without insurance.) Suppose a state lew has been passed forcing all individuals to purchase insiurance at the actuarially fair price. True or False: The law will affect only the behavior of drivers with 55,500.00 in the bank. False True 5. Individual Problems 20-4 Suppose that every driver faces a 4% probability of an automobile accident every year. An accident will, on average, cost each driver $11,000. Suppost there are two types of individuals: those with $66,000.00 in the bank and those with $5,500,00 in the bank, Assume that individuals with $5,500.00 in the bank declare bankruptcy if they get in an accident. In bankruptcy, creditors receive only what individuals have in the bank. Assume that both types of individuals are only slightly risk averse. In this scenario, the actuarially falr price of full insurance, in which all damages are paid by the insurance compary, is Assume that the price of insurance is set at the actuarially fair price. At this price, drivers with $5,500.00 in the bank likely buy insurance, and those wit $66,000,00 in the bank likely insurance. (Hint: For each type of driver, compare the price of insurance to the expected cost without insurance.) Suppose a state lew has been passed forcing all individuals to purchase insiurance at the actuarially fair price. True or False: The law will affect only the behavior of drivers with 55,500.00 in the bank. False True