# 16.2 Insurance and imperfect information  (Page 2/33)

 Page 2 / 33

If each of the 100 drivers pays a premium of $1,860 each year, the insurance company will collect the$186,000 that is needed to cover the costs of the accidents that occur.

Since insurance companies have such a large number of clients, they are able to negotiate with providers of health care and other services for lower rates than the individual would be able to get, thus increasing the benefit to consumers of becoming insured and saving the insurance company itself money when it pays out claims.

Insurance companies receive income, as shown in [link] , from insurance premiums and investment income. Investment income is derived from investing the funds that insurance companies received in the past but did not pay out as insurance claims in prior years. The insurance company receives a rate of return from investing these funds or reserves. The investments are typically made in fairly safe, liquid (easy to convert into cash) investments, as the insurance companies needs to be able to readily access these funds when a major disaster strikes.

## Government and social insurance

Federal and state governments run a number of insurance programs. Some of the programs look much like private insurance , in the sense that the members of a group makes steady payments into a fund, and those in the group who suffer an adverse experience receive payments. Other programs protect against risk, but without an explicit fund being set up. Following are some examples.

• Unemployment insurance : Employers in every state pay a small amount for unemployment insurance, which goes into a fund that is used to pay benefits to workers for a period of time, usually six months, after they lose their jobs.
• Pension insurance : Employers that offer pensions to their retired employees are required by law to pay a small fraction of what they are setting aside for pensions to the Pension Benefit Guarantee Corporation, which is used to pay at least some pension benefits to workers if a company goes bankrupt and cannot pay the pensions it has promised.
• Deposit insurance : Banks are required by law to pay a small fraction of their deposits to the Federal Deposit Insurance Corporation, which goes into a fund that is used to pay depositors the value of their bank deposits up to $250,000 (the amount was raised from$100,000 to \$250,000 in 2008) if the bank should go bankrupt.
• Workman’s compensation insurance : Employers are required by law to pay a small percentage of the salaries that they pay into funds, typically run at the state level, that are used to pay benefits to workers who suffer an injury on the job.
• Retirement insurance : All workers pay a percentage of their income into Social Security and into Medicare, which then provides income and health care benefits to the elderly. Social Security and Medicare are not literally “insurance” in the sense that those currently contributing to the fund are not eligible for benefits. They function like insurance, however, in the sense that regular payments are made into the programs today in exchange for benefits to be received in the case of a later event—either becoming old or becoming sick when old. Such programs are sometimes called “social insurance.”

#### Questions & Answers

with reference to specific example explain,and illustrate how an increase in the demand of palm oil will affect the price and quantity supply of palm kernel
What are the principal of economics?
how did microeconomics
Consider the market for 'solar panels on the roofs of domestic houses. Assume tha market is initially in equilibrium. Using the demand and supply framework explain what would happen in the market for solar panels if the price of electricity (supplied via the electricity network) was to increase.
yunus
n
Damah
def of demand
Waseem
using the graph illustrate all the types of elascity
ha
Nathaniel
.
Anjali
what is demand elasticity
liyah
what is the types of elasticity
Iqra
distinguish between increase in demand curve and extenaion in demamd curve
what are the shapes of an indifference curve?
division of labour is simply the breaking of job functions so that each individual is engage to one set or the other for easy delivery
Division of labor is the break down of labor into smaller units with each handed over to a particular person or group of people.
Amanor
What is division of labor
it is also simply the breaking down of work into various part so that each individual is entitle to one for easy delivery
EMMANUEL
it is the simplifying of tasks into smaller easily workable divisions where each person specialises on what they understand better
cabs
ok
EMMANUEL
thanks for your briefing and time
EMMANUEL
what are the sources of monopoly power?
the first source, are informations
amine
political power and influence in monetary institutions
Shahul
what is imperfect competition ?
the situation in which elements of monopoly ( R&D, EOS and stability of prices etc.) allow individual producers or consumers to exercise some control over market prices
Ghulam
how to find shut down
where p is less than avc
Koushik
s
Shahul
which is the best public finance economics text book?
Shahul
hello
shafiullah
hello
Shahul
Yes hi
Pov
....
SHAH
what are the alternatives various of economic system
what is microeconomics
Ayedun
Micro-economics refers to the branch of economics which deals with smaller unit or element of the economy.
or Is the study of individual economic unit in a economy..
Neriel
micro economis is the studay of how Households and firms make decision and they interecr it.
what is financial intermediaries?
financial intermediaries are those who are link between borrowers and lenders for.eg bank... Bank is a financial intermediary
Ajit
tnx a lot of u
Imran
most welcome
Ajit
why do you here ? why do you want to learn economics
Ajit
والله العظيم انا ماعاوز اتعلمها
انا باخدها غصب عني في الكليه حضرتك
لس كدااا
I am student of ecnomics ,
Imran
Imran
Abdi
yes Abdi temam
Imran
am good too see you
Abdi
tnx why not
Imran
b/c im student
Abdi
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Imran
ok
Abdi
OK
Ajit
what is the law of dimis
what is the feature of public ownership of production factors
Toyin
what is the demand for commodity that posses identical utilities called
Toyin
law of diminishing utility...as the quantity consumed of a commodity increases,the utility derived from each successive unit goes on decreasing... condition___ consumption of other commodities remaining the same.
Malik
sorry it's...Law of diminishing marginal utility
Malik
demand for commodities that posses identical utilities? The commodities having identical utilities are perfect substitutes...and the demand for such type of commodities is called "Competitive Demand".
Malik
thanks
Toyin
Why many people can't differentiate Economists and financial analysts
Hatimu
what is the function of the central bank in an economic?
Toyin
the central bank may lend some money to banks if necessary
konglan
what economics
Is this a question?
Tala
is the study of how societies allocate and manage their scare resources
Neriel