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Which of the following best describes how an increase in burglary rates will impact the market...

Which of the following best describes how an increase in burglary rates will impact the market for insurance? Select one: a. Demand for insurance will increase causing an increase in equilibrium price and quantity b. Demand for insurance will increase and supply will decrease causing an increase in equilibrium price and an ambiguous change in quantity c. Supply will decrease causing an increase in equilibrium price and decrease in quantity d. Demand for insurance will increase and supply will increase causing an increase in equilibrium quantity and an ambiguous change in price

Solutions

Expert Solution

With increase in burglary rates, demand for insurance will rise and demand curve will shift up and right. This causes excess demand at original price of insurance so price must rise and equilibrium quantity will also rise, assuming both demand and supply to be elastic

Rahul Sunny answered 2 years ago
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