Suppose ordinarily half your class would get an A and half would get a B, with A students having a 25% chance of getting an A and B students having a 25% of getting an A.It costs $100 to persuade the instructor to raise a B grade to an A.A student is willing to pay $40 to insure she will get her usual grade and $70 to insure she will get a higher grade than usual.
a.If all students buy insurance that guarantees them an A, what is the zero profit price for an insurance company that offers A insurance.
b.Will grade insurance be sold in equilibrium?
c.Who would buy insurance and at what price if the insurance companies could tell what type of student each student is?
d.Is either the result in (b) or (c) efficient?

Question

Quizplus · Accepted Answer

The Answer of Suppose ordinarily half your class would get an A and half would get a B, with A students having a 25% chance of getting an A and B students having a 25% of getting an A.It costs $100 to persuade the instructor to raise a B grade to an A.A student is willing to pay $40 to insure she will get her usual grade and $70 to insure she will get a higher grade than usual.
a.If all students buy insurance that guarantees them an A, what is the zero profit price for an insurance company that offers A insurance.
b.Will grade insurance be sold in equilibrium?
c.Who would buy insurance and at what price if the insurance companies could tell what type of student each student is?
d.Is either the result in (b) or (c) efficient?

Suppose Ordinarily Half Your Class Would Get an a and Half