Question 1. Based on Gruber 12.12 There are two types of drivers on the road today. Speed Racers have a 5% chance of causing an accident per year, while Low Riders have a 1% chance of causing an accident per year. There are twice as many Speed Racers as there are Low Riders. Each driver has an income of $12,000 and the cost of an accident is $12,000. a) Suppose an insurance company knows with certainty each driver's type. What premium would the insurance company charge each type of driver? Now suppose that there is asymmetric information so that the insurance company does not know the driver's type. The insurance company offers a premium equal to the average actuarially fair premium in the population. b) Suppose U = ]n(C) for all C>0 where C is the amount of consumption you have in any given period. If C=0 (i.e., I have no income), then U=0. Who would buy insurance? What is this equilibrium called? c) Now suppose U = X] C . Who would buy insurance? What is this equilibrium called