Question

In: Economics

As an employee, $10 per month is deducted from your paycheck for life insurance--as it is for all 500 employees at the company where you work.

Pick the correct analysis of the following example.

As an employee, $10 per month is deducted from your paycheck for life insurance--as it is for all 500 employees at the company where you work. After you retire, you decide to continue payments on your own. But you now must pay $250 a month (not $10).


buyer knows more than seller, seller knows

seller knows more than the buyer, buyer doesn't know

buyer knows more than seller, seller doesn't know

seller knows more than the buyer, buyer knows

Solutions

Expert Solution

After the retirement the payment for the life insurance made by the employee on the basis of their willing and employee is willing to pay more for life insurance after retirement than at the time of work.

It implies that buyer of the insurance policy (employee) knows more than the seller of the insurance, that's why employee is willing to pay more for insurance after the retirement (when he has authority to decide how much insurance is optimal for him).

So, the correct answer is an option (a).

Rahul Sunny answered 2 years ago
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