Homework Clinic
Social Science Clinic => Economics => Microeconomics => Topic started by: colton on Jul 21, 2019
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Suppose that everybody pays the same price for auto insurance. What should happen to the price of insurance if the law changes from a system where there is mandatory auto insurance to one where there is voluntary auto insurance?
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When auto insurance becomes voluntary, many safe drivers will exit the market because their expected costs are below their premiums when all risk is pooled. Therefore, a higher percentage of reckless drivers will remain. In this case, the price of insurance will rise.
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