Y5

5. As discussed in class, the problem of adverse selection occurs when there are stronger incentives for "bad" commodities to trade in a market than "good" commodities. In the questions above, the "bad" commodities were high-risk drivers.4. Returning to the conditions outlined in Q2(b), suppose that buyers of auto insurance (high- and low- risk) were offered a $1,000 subsidy to purchase coverage. This would raise their WTP by $1,000. Would the market for both insurance plans clear after the subsidy? Explain. 5pt 5. As discussed in class, the problem of adverse selection occurs when there are stronger incentives for "bad" commodities to trade in a market than "good" commodities. In the questions above, the "bad" commodities were high-risk drivers