Author Question: Steve owns a motorcycle valued at 5,000 and that is his only asset. There is a 5 percent chance that ... (Read 45 times)

Bob-Dole · **on:** Jun 29, 2018

Steve owns a motorcycle valued at 5,000 and that is his only asset. There is a 5 percent chance that Steve will have an accident within a year. If he does have an accident, his motorcycle is worthless.

Steve's utility of wealth curve is shown in the figure above. An insurance company agrees to pay Steve the full value of his motorcycle in case of an accident if he buys the company's insurance policy. The company's operating expenses are 500 per policy. What is the minimum premium that the insurance company will accept? A) 1,000
B) 2,000
C) 500
D) 1,500

Question 2

Michigan Radio is the state's most listened-to public radio service, attracting approximately 400,000 listeners each week and is funded through listener donations.

If Michigan Radio suffers from the free-rider problem then the market would provide an ________ quantity of the public good. A) efficiently small
B) efficiently large
C) inefficiently small
D) inefficiently large