(Consider This) Martha's Milkshake Company buys earthquake insurance from the Stable Ground Insurance Company. Based on this purchase, economists would conclude that
A) Martha's believes a damaging earthquake is imminent.
B) Stable Ground believes no damaging earthquakes will occur.
C) Martha's has a lower tolerance for earthquake risk than Stable Ground.
D) Martha's has a greater tolerance for earthquake risk than Stable Ground.

Question

Quizplus · Accepted Answer

Martha's Milkshake Company is buying earthquake insurance, which is a way for them to transfer the risk of potential earthquake damage to Stable Ground Insurance Company. This suggests that Martha's has a lower tolerance for earthquake risk and wants to protect themselves in case an earthquake does occur. Stable Ground, on the other hand, is willing to accept the risk and provide insurance coverage, indicating that they have a higher tolerance for earthquake risk than Martha's.

(Consider This) Martha's Milkshake Company Buys Earthquake Insurance from the Stable