Question 4: Asymmetric Information State Farm is a competitive firm in the auto insurance market. It is happy to insure both good drivers and bad drivers. It costs State farm $100 to insure good drivers, and it costs State farm $1000 to insure bad drivers. In the market for drivers, half of the drivers are good drivers and the other half are bad drivers. Suppose State Farm is unable to tell who is a good driver versus who is a bad driver, so State Farm charges an insurance premium of $550 (a premium that reflects the average cost to insure drivers). Part A: Good drivers value insurance at $400. Bad drivers value Insurance at $1200. Will the bad drivers be insured in this market? Will the good drivers be insured in this market? Is this outcome socially optimal? Explain. Part B: Suppose now Good drivers value insurance at $600. Bad drivers value Insurance at $1200. Will the bad drivers be insured in this market? Will the good drivers be insured in this market? Is this outcome socially optimal? Explain Part C: Suppose now Good drivers value insurance at $400, Bad drivers value Insurance at $1200. But State Farm can tell which driver is good versus which driver is bad. Will the bad drivers be insured in this market? Will the good drivers be insured in this market? Is this outcome socially optimal? Explain. Question 4: Asymmetric Information State Farm is a competitive firm in the auto insurance market. It is happy to insure both good drivers and bad drivers. It costs State farm $100 to insure good drivers, and it costs State farm $1000 to insure bad drivers. In the market for drivers, half of the drivers are good drivers and the other half are bad drivers. Suppose State Farm is unable to tell who is a good driver versus who is a bad driver, so State Farm charges an insurance premium of $550 (a premium that reflects the average cost to insure drivers). Part A: Good drivers value insurance at $400. Bad drivers value Insurance at $1200. Will the bad drivers be insured in this market? Will the good drivers be insured in this market? Is this outcome socially optimal? Explain. Part B: Suppose now Good drivers value insurance at $600. Bad drivers value Insurance at $1200. Will the bad drivers be insured in this market? Will the good drivers be insured in this market? Is this outcome socially optimal? Explain Part C: Suppose now Good drivers value insurance at $400, Bad drivers value Insurance at $1200. But State Farm can tell which driver is good versus which driver is bad. Will the bad drivers be insured in this market? Will the good drivers be insured in this market? Is this outcome socially optimal? Explain