2 Market schedule for insurance providers and consumers in Poveria (a) Plot the

Question

2 Market schedule for insurance providers and consumers in Poveria
(a) Plot the schedule and identify the number of insurance providers and consumers in Poveria
(b) What is the equilibrium premium?
(c) Suppose—for public safety—100 Poverians desire insurance at a premium that is less than $300, what is an appropriate response (market and/or policy) to the market failure if healthcare is a public good that requires a better or desirable equilibrium?
(d) Identify and briefly discuss four reasons for the market failure in Poveria   

Explanation / Answer

a) Market schedule for insurance in Poveria

b)Equilibrium premium is $300.The demand-supply schedule only tells about how many customers are willing to buy and supply respectively at these prices and hence to determine number of buyers and sellers is difficult.

c) If Poverians desire premium less than $300 then obviously due to law of demand supply will decrease but demand will increase and hence there will be market failure as it will lead to underallocation of resources due to suppliers supplying less amount of insurance.

d) Appropriate response this can be government providing insurance to needy people at subsidized rates or govt supports insurance comapnies by paying difference premiums. It is also possible that government positively advertizes about benefits of insurance and people take it at market prices.

Price ($) Quantity Demanded(Qd) Quantity Supplied (Qs) 100 100 20 200 80 40 300 60 60 400 40 80 500 20 100

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