Suppose that an insurance company wants to offer insurance for bicycle theft. They do a careful market survey and find that the incident of theft varies widely across communities. In some areas there is a high probability that a bicycle will be stolen, and in other areas thefts are quite rare. Suppose that the insurance company decides to offer the insurance based on the average theft rate. What do you think will happen? Answer: the insurance company is likely to go broke quickly! Think about it. Who is going to buy the insurance at the average rate? Not the people in the safe communities – they don’t need much insurance anyway. Instead the people in the communities with a high incidence of theft will want the insurance – they’re the ones who need it. But this means that the insurance claims will mostly be made by the consumers who live in the high-risk areas. Rates based on the average probability of theft will be a misleading indication of the actual experience of claims filed with the insurance company. The insurance company will not get an unbiased selection of customers; rather they will get an adverse selection. In fact the term “adverse selection” was first used in the insurance industry to describe just this sort of problem. It follows that in order to break even the insurance company must base their rates on the “worst-case” forecasts and that consumers with a low, but not negligible, risk of bicycle theft will be unwilling to purchase the resulting high-priced insurance. A similar problem arises with health insurance—insurance companies can’t base their rates on the average incidence of health problems in the population. They can only base their rates on the average incidence of health problems in the group of potential purchasers. But the people who want to purchase health insurance the most are the ones who are likely to need it the most and thus the rates must reflect this disparity. In such a situation it is possible that everyone can be made better off by requiring the purchase of insurance that reflects the average risk in the population. The high-risk people are better off because they can purchase insurance at rates that are lower than the actual risk they face and the low- risk people can purchase insurance that is more favorable to them than the insurance offered if only high-risk people purchased it.
Consider the bicycle example. Suppose that the insurance company must not differentiate bythe districts where theft happens. What will be the equilibrium? Why?
In: Economics
Briefly summarize how this article relates to Time Value of Money particularly useful or timely, and give your personal reactions to the article.
It's times like these that I plaintively cry for my phantom butler. True to form, he never shows. Then, begrudgingly, I clean up � which doesn't really take that much time. But added to all the time I took to sidestep the growing mess and pretend it doesn't bother me, it's another ring on my tree trunk. So I'm left wondering: Is it worth it for me to get a housekeeper? To help answer the question, I talked to two economists. (Yes, the perks of my job are without number.) Ian Walker of the University of Warwick in England came up with a formula a few years ago to help assess the monetary value of your time. He takes into account your gross hourly wage, your marginal tax rate (the top tax rate you pay), and the cost-of-living in your area. The formula is based on the assumption that what you make is an indication of how you value an hour of your time because that's what you're willing to sell it for to an employer. Theoretically (although not practically), you could always be working and earning money instead of cooking, mowing the lawn, doing the laundry, etc. But the worth of your wage also depends on the cost of living in your area and your taxes, since they determine how far your wage will go when it comes to spending it. Here's Walker's formula (algebra-phobes may want to close their eyes now): The value of your time = [Wage(100-Tax rate)]/Cost of living. Say you're single in San Diego making $75,000 a year. Your gross hourly wage is roughly $36, assuming you're paid for a 40-hour week, 52 weeks a year, including vacation. Your combined marginal tax rate (federal + state +local) would be 37.3 percent, according to tax publisher CCH, Inc. And according to ACCRA, which compiles cost-of-living indexes, your cost of living number is 137.3, meaning the cost of living in San Diego is 1.373 times higher than the national average (100). By Walker's formula, the value of your time is $16.44 per hour. Or: [36(100-37.3)]/137.3. So say you're debating whether to launder your shirts or send them out. If it takes you two hours to do your shirts (time you might value at $32.88) and the laundry service can do it for the same or less, you might conclude it's a worthwhile purchase if you'd rather do something else with your time. Don't forget quality of life The formula, however, isn't perfect. For instance, it doesn't distinguish between earned income and investment income, which are often taxed at different rates. Plus it's hard for most of us to figure out our effective tax rates (the rates you actually pay after you take deductions, etc.). And it's hard to get a current cost-of-living number specific to where you live. (Attached is a partial list.) The formula also assumes the value of your time is constant. Practically speaking, that's not the case, said Daniel Hamermesh, an economist at the University of Texas. He notes the value of his time in summer is probably less than during the school year when he's at his busiest. It also can't offer a way to value the pleasure or displeasure you take in performing a task. That should be a top consideration when assessing the value of your time, since time is a finite commodity for all of us, and how we spend it determines our quality of life, Hamermesh said. You may choose to paint a room in your house because you enjoy it, even though the opportunity cost of your time is high, while the cost of a painter by comparison is low. Conversely, you may choose to eat out more often because you dislike cooking. Lastly, the formula doesn't account for the fact that paying for a service may be worthwhile if it's for a task you don't do very well. Hamermesh uses the example of a plumber, who may cost you more per hour than you could net at work, but that's money well spent if you're an idiot when it comes to fixing toilets. Or ... just wing it All this assumes, of course, that you have discretionary income (after-tax money left over after paying the bills). Of course, most people aren't able to afford all the things they desire. So you'll have to rank your likes and dislikes and your level of competency at various tasks, in addition to roughly gauging the monetary value of your time to determine if a service is worth your money in exchange for free time. But at the end of the day, Hamermesh implied by way of example, you shouldn't think too hard about the question. A colleague of his pointed out the tremendous complexities that go into passing a car on a two-lane road. You've got to assess your velocity, the velocity of the car in front of you and the velocity of the car coming toward you in the other lane. "But you don't do a differential equation," Hamermesh said. You make your best guess, pass the car and most of the time you don't get in an accident. Well, there it is. I'm definitely getting a housekeeper. I just want to clean up first before she comes.
In: Economics
We will soon be visiting chapter 8 and organizational budgeting. There are many aspects of budgeting and, conversely, many impacting results from realistic and/or unrealistic budgeting goals. Share with us your thoughts and ideas on budgeting and what impact this important topic may have on an organization's goals and ultimate success.
In: Accounting
Mutation is seen as defective form/functions of living things. But it can also allow us to learn/experience/explore from it. a. What is genetic mutation? b. What causes mutations? c. Describe some common chromosomal mutation and discuss why are mutations so important to living organisms.
In: Biology
Q2. When determining the Amount of Tax filing status of the tax payer should be determined first to determine tax rates.
Required: Determine all Filing status in US income tax and rank tax rates from lowest to highest.
PLZ NO HAND WRITING OR PIC
THANKS ALOT
In: Accounting
In: Nursing
Do you agree with Confucius that the family is the model for relationships in society? Do you agree with Taoism that nature flows through all things, connecting all things, including human beings? In this sense, for both Confucianism and Taoism that which keeps us from seeing this is the ego. Is this the case, or are they mistaken?
In: Psychology
In: Psychology
1. Currency conversion: Write a snippet that first asks the user to type
today's price for one dollar in Euros, then continues to read US dollar values
from the user and convert each to Euros until the sentinel value 0 is entered.
Format output to 2 decimal places.
*****IN JAVA********
In: Computer Science
The Commonwealth Bank of Australia (CBA) recently announced a “cash net profit from continuing operations for the 2020 Financial Year of $7.3 billion”. What is Commonwealth’s dividend policy, and what was the total dividend paid to shareholders in 2019/20? https://www.commbank.com.au/about-us/investors/dividend-information.html
In: Finance