Figure 9.6
-Figure 9.6 represents the market for health insurance. Suppose there are two types of consumers, low-cost consumers with $2,000 average medical expenses per year, and high-cost customers with $4,000 average medical expenses per year. The insurance companies estimate that 40% of its customers are high-cost type. The uninformed side(s) of the market is (are)

Question

Quizplus · Accepted Answer

Insurance companies are the uninformed side because they cannot perfectly distinguish between low-cost and high-cost consumers, hence they face uncertainty regarding the actual risk profile of their customers.

Figure 9.6 -Figure 9.6 Represents the Market for Health Insurance. Suppose There