Assume that flood insurance premiums are determined in the competitive market.Suppose that devastating floods along the Mississippi River have increased the degree of risk aversion among the insurance investors in this market.The _____ insurance shifts _____,leading to a(n)_____ in equilibrium premiums and a(n)_____ in the quantity of insurance bought and sold.
A)supply of;rightward;decrease;increase
B)demand for;leftward;decrease;decrease
C)supply of;leftward;increase;decrease
D)demand for;rightward;increase;increase

Question

Quizplus · Accepted Answer

When insurance investors become more risk-averse due to devastating floods, they perceive the provision of insurance as riskier. This leads to a leftward shift in the supply of insurance because insurers are less willing to supply insurance at any given price, expecting higher premiums to compensate for the increased risk. Consequently, equilibrium premiums increase, and the quantity of insurance bought and sold decreases.

Assume That Flood Insurance Premiums Are Determined in the Competitive