Suppose a family with 1 child has $20,000 per year to spend on private goods and education, and suppose all education is provided privately. Draw…

Now suppose there is asymmetric information, so the insurance company doens’t know each

driver’s type, would insurance be sold if:

1) Drivers self report their types to the company?

2) No information is known about types?

If you are not sure about the answer, say why.

5. Why does the government mandate individuals to purchase their own insurance in some cases

(e.g., car liability insurance) but directly provides insurance in other situations (e.g., health insurance)?

6. Congressman Snide has proposed a bill which would make more years of earnings count when

calculating the Social Security Average Indexed Monthly Earnings amount (increase it from 35 years

to 40 years). What would be the e effects of this policy change on the retirement behavior of workers?

Would the Social Security trust fund balance increase or decrease? Why?

7. What might be the political and economic ramifications of investing a large share of the Social

Security trust fund in the stock market?

8. (Chapter 14) What is the empirical evidence about the consumption-smoothing benefits of UI

indicate about the degree to which individuals are on average, insured against the income losses associated with unemployment?

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