The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers.
-In a pooling equilibrium,aggressive drivers pay a premium of ________ and safe drivers pay a premium of ________.
A) $1,000; $1,000
B) $800; $1,200
C) $1,200; $800
D) $1,000; $800
E) $1,200; $1,000

Question

The figures show two auto insurance markets, one market for safe drivers and one market for aggressive drivers.
-In a pooling equilibrium,aggressive drivers pay a premium of ________ and safe drivers pay a premium of ________.
A) $1,000; $1,000 
B) $800; $1,200 
C) $1,200; $800 
D) $1,000; $800 
E) $1,200; $1,000

Quizplus · Accepted Answer

In a pooling equilibrium, all drivers, regardless of their driving behavior, pay the same premium because the insurance company cannot distinguish between aggressive and safe drivers. Therefore, both aggressive and safe drivers pay a premium of $1,000 in this scenario.

The Figures Show Two Auto Insurance Markets, One Market for Safe