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Individual Risk, Risk Adverse, Insurance Premium, Lemons Problem, Signalling Game, Kinds of Auction, Asymmetric Information, Offset the Impact, Operation of Financial, Buyers and Sellers. Exam paper for economic students.
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DEGREE EXAMINATIONS – May/June 2009 ARHOLIADAU GRADD – Mai/Mehefin 2009
SEMESTER 2
EC30610 – UNCERTAINTY AND ASYMMETRIC INFORMATION
Time Allowed: ONE AND A HALF hours
Answer TWO questions
a) Is the individual risk adverse? b) Explain the concept of a fair insurance premium and identify its value in this case. c) Why in practice is the premium likely to be worse than fair? d) What is the maximum premium that the individual would be prepared to pay? e) How does the purchase of actuarially fair insurance turn an uncertain situation into a situation where the expected value of income is received with certainty?