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Exam (elaborations)

RM 430 Exam 1 Study Guide Solutions

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RM 430 Exam 1 Study Guide Solutions Perfectly competitive market characteristics - Ans:-1. Large numbers of buyers and sellers 2. No barriers to entry and exit 3. Homogenous product 4. Equal info available to buyers and sellers HHI - Ans:-HHI<1500 - Not concentrated 1500<HHI<2500 - M...

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  • October 24, 2024
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  • 2024/2025
  • Exam (elaborations)
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  • 2024/2025
  • 2024/2025
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RM 430 Exam 1 Study Guide Solutions


Perfectly competitive market characteristics - Ans:✔✔-1. Large numbers of buyers and sellers


2. No barriers to entry and exit


3. Homogenous product


4. Equal info available to buyers and sellers


HHI - Ans:✔✔-HHI<1500 - Not concentrated


1500<HHI<2500 - Moderately concentrated


HHI>2500 - Highly concentrated


Legitimate barriers to entry - Ans:✔✔-Brand awareness


Distribution system (exclusive agent or independent agent)


Sticky consumers


Economies of scale


Economies of scope

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, ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED

FIRST PUBLISH OCTOBER 2024




Basis for insurance differentiation - Ans:✔✔-Rating from agency


Dividends from participating policies


Claims service


Advisory service


Financial supermarket?


Asymmetric Info favoring suppliers - Ans:✔✔-Insurers have better info on their financial strength than

consumers


Asymmetric info favoring consumers - Ans:✔✔-Adverse selection


Moral hazard


Adverse selection - Ans:✔✔-High risk customers take advantage of an insurer using their info to their

advantage


Controlled by underwriting, enhanced data collection, legal implications of misrepresentations


Moral hazard - Ans:✔✔-Behavioral tendency by PH that increases the expected loss to the insurer after

the policy is in place


controlled by policy deductibles, loss verification, and underwriting



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