Quantities label prices before and after

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Unformatted text preview: $2000 for an annual insurance plan that will provide them with full coverage of medical expenses. If insurers can tell the type of each consumer, will both types of insurance plan sell? Explain. d) (4 points) Suppose that half of the population is Type I and half of the population is Type II. Now suppose an insurer cannot tell which consumers are Type I and which are Type II. Consumers know their type but insurers can’t differentiate between consumers, so they have to charge a single price to all consumers. What is the minimum amount that the insurer would be willing to accept for an insurance plan, assuming both types of consumers buy policies? To receive credit you must show your work. e) (3 points) Under this scenario, will both types of consumers actually buy insurance? Explain. Page 13 Econ 325 CRN: 14794 Section A01 f) (3 points) Is there anything inefficient about this outcome? If so, suggest an appropriate policy response. 6) (5 points) With a diagram illustrating the marginal benefit and marginal cost of tax evasion, illustrate why the rich, under the income tax system in Canada, have a greater incentive to evade taxes than the poor. END THIS PAGE INTENTIONALLY LEFT BLANK FOR SCRATCH WORK Page 14 Econ 325 CRN: 14794 Section A01...
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This document was uploaded on 09/17/2013.

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