In the market for auto insurance,in a pooling equilibrium,
A) risky and safe drivers pay the same premium for insurance.
B) risky drivers pay a larger premium than do safe drivers for insurance.
C) risky drivers pay a smaller premium than do safe drivers for insurance.
D) risky drivers cannot obtain insurance.
E) safe drivers cannot obtain insurance.

Question

Quizplus · Accepted Answer

In a pooling equilibrium, all drivers, regardless of their risk level (risky or safe), pay the same premium for insurance because the insurance company cannot perfectly distinguish between the two types. This results in a single insurance premium that reflects the average risk of the combined pool of insured drivers.

In the Market for Auto Insurance,in a Pooling Equilibrium