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Auto Insurance and Voluntary Auto Insurance

Answer these questions if possible:

i)Suppose that everyone pays the same price for auto insurance. What should happen to the price of insurance if the law changes from a system where there is mandatory auto insurance to one where there is voluntary auto insurance?

ii) Why do car insurance companies charge higher auto rates for new customers than for established customers, all else held constant?

iii) What is the term given to the relationship between the wage and quantity of labor that a given worker is willing to provide, is it (a)market labor demand (b) individual labor demand (c) individual labor supply (d) market labor supply / and please explain why

Solution Preview

i) Suppose that everyone pays the same price for auto insurance. What should happen to the price of insurance if the law changes from a system where there is mandatory auto insurance to one where there is voluntary auto insurance?

Since it is not mandatory, the demand would decrease and then most of the insurance firms have to reduce the price. There would be a ...

Solution Summary

This solution explains how the demand changes in relation to mandatory insurance versus voluntary insurance and explains the concepts of time value of money and market labor supply.

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