(a) In the graph below , there are 2 families, A and B . Each has an ideal consu
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Question
(a) In the graph below , there are 2 families, A and B . Each has an ideal consumption path that has constant consumption c* in each period. If there is no savings or borrowing in this economy, why might these families want some sort of insurance? Explain
(b) According to the graph in part (a), which family will have a greater demand for insurance? Explain
(c) Now consider the case when Family A has a daughter. Family A is considering marying their daughter off to Family 1 or Family 2. Based on insurance considerations only, which family is a more attractive marriage option for Family A? Explain?
In the graph below , there are 2 families, A and B . Each has an ideal consumption path that has constant consumption c* in each period. If there is no savings or borrowing in this economy, why might these families want some sort of insurance? Explain According to the graph in part (a), which family will have a greater demand for insurance? Explain Now consider the case when Family A has a daughter. Family A is considering marying their daughter off to Family 1 or Family 2. Based on insurance considerations only, which family is a more attractive marriage option for Family A? Explain?Explanation / Answer
a)these families want some sort of insurance as there are income fluctuations over the time period. So if income is low, atleast they can claim insurance as there are no savings in economy.and they can have consumption
b)According to the graph in part (a) Family A has greater demand for insurance as it has mor fluctuation or it has more variance in income than family B.So family A has greater demand for insurance
c) If Family A is considering marying their daughter off to Family 1 or Family 2. Based on insurance considerations,Family 2 is more attractive as there is stability related to income for that family due to insurance and as well as due to higher income than family2
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