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Discuss: The Market for Consumer Goods and Services

Question: In the market for most consumer goods and services we assume the law of supply and demand, operating through open competition, determines the price. Competition, however, does not necessarily work to the consumer's advantage in the insurance market. Please discuss the following questions:
- How does the pricing of an insurance policy for the insurer differ from a bologna manufacture's pricing its product?
- Why does the difference in pricing problems require that insurance pricing be subject to regulation?
- Why might be lowest-priced insurance policy be undesirable from the consumer's standpoint?

Solution Preview

In the case of comparing insurance to a food product, there are several points to take into consideration. The food product is highly elastic whereas insurance is mostly inelastic, for most types of insurance. Consumers must have car insurance by law in almost all states, and they must also have business insurance and homeowners' or renters' insurance policies. This makes insurance a relatively inelastic good. Because it is inelastic, ...

Solution Summary

This response discusses in 280 words, the consumer market for good and services, analyzing topics which include pricing for insurance, regulation and the lowest-priced insurance policy.