# Why are insurance companies unwilling to provide

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1. Why are insurance companies unwilling to provide insurance against losses arising from war or‘civil insurrection’?Because the risks are notindependent. If family A has its house bombed, it is more likely that familyB will too.2. Name some other events where it would be impossible to obtain insurance.Against losses on the stock market; against crop losses resulting from drought.102Although indifference curves will normally be bowed in toward the origin, on odd occasions theymight not be. Which of the diagrams correspond to which of the following?(a)X and Y are left shoes and right shoes.(b)X and Y are two brands of the same product, and the consumer cannot tell them apart.(c)X is a good but Y is a ‘bad’ – like household refuse.
55Chapter 4(a)Diagram (ii). An additional left shoe will give no extra utility without an additional right shoe togo with it!(b)Diagram (i). The consumer is prepared to go on giving up one unit of one brand provided that itis replaced by one unit of the other brand.(c)Diagram (iii). If consumers are to be persuaded to put up with more of the ‘bad’, they musthave more of the good to compensate.103Draw another two indifference curves on Figure 4.6, one outward from and one inward from theoriginal curve. Read off various combinations of pears and oranges along these two new curves andenter them on a table like Table 4.2.The curves would look like those in Figure 4.7 (on page 103). The curve further outward wouldrepresent a higher level of utility. This would be obtained by consuming a larger quantity of pearsfor each quantity of oranges consumed and a larger quantity of oranges for each quantity of pears(i.e. an increase in each of the figures in Table 4.2). The curve further inward would represent alower level of utility. This would be experienced with fewer pears for each quantity of oranges andvice versa.1041. Assume that the budget remains at £30 and the price of X stays at £2, but that Y rises in price to£3. Draw the new budget line.The budget line will pivot inwards on point d (i.e. where it crosses the horizontal axis). It will nowconnect 10Y on the vertical axis with 15X on the horizontal.
56Chapter 4Page1042. What will happen to the budget line if the consumer’s income doubles and the price of both X andY double?It will not move. Exactly the same quantities can be purchased as before. Money income has risen,but realincome has remained the same.1061. The income–consumption curve in Figure 4.13 is drawn as positivelysloped at low levels ofincome. Why?Because for those on a low level of income the good is not yet in the category of an inferior good.Take the case of inexpensive margarine. Those on verylow incomes may economise on their use ofit (along with all other products), but as they earn a little more, so they can afford to spread it a littlethicker or use it more frequently (the income–consumption curve is positive). Only when theirincome rises more substantially do they substitute better quality margarines or butter.