Suppose that every driver faces a 1% probability of an automobile accident every year. an accident will, on average, cost each driver $10,000. suppose there are two types of individuals: those with $60,000 in the bank and those with $5,000 in the bank. assume that individuals with $5,000 in the bank declare bankruptcy if they get in an accident. in bankruptcy, creditors receive only what individuals have in the bank. what is the actuarially fair price of insurance? what price are individuals with $5,000 in the bank willing to pay for the insurance? will those with $5,000 in the bank voluntarily purchase insurance? what is the effect of state laws forcing individuals to purchase auto liability insurance?

Aprice ceiling is “binding” if the price ceiling is set below the equilibrium price. suppose that the equilibrium price is $5. if a price ceiling is set at $6, this will not affect the market in any way since $5 remains a legally allowable price (since $5 < $6). a price ceiling of $6 is called a “non-binding” price ceiling. on the other hand, if the price ceiling is set at $4, the price ceiling is “binding” because the natural equilibrium price is $5 but that is no longer allowed. what happens when there is a binding price ceiling? at a price below the equilibrium price, quantity demanded exceeds quantity supplied. there is a shortage. normally, price increases eliminate shortages by increasing quantity supplied and decreasing quantity demanded. in this case, however, price increases are not allowed past the price ceiling. we therefore predict that the observed market price will be right at the price ceiling and there will be a permanent shortage. the observed quantity bought and sold will be dictated by the quantity supplied at the price ceiling. although consumers would like to buy more, there are no more units for sale

Acorporation a. can use different depreciation methods for tax and financial reporting purposes b. must use the straight - line depreciation method for tax purposes and double declining depreciation method financial reporting purposes c. must use different depreciation method for tax purposes, but strictly mandated depreciation methods for financial reporting purposes d. can use straight- line depreciation method for tax purposes and macrs depreciation method financial reporting purposes

If a government accumulates chronic budget deficits over time, what's one possible result? a. a collective action problem b. a debt crisis c. regulatory capture d. an unfunded liability