ECO 2023 Lecture Notes - Lecture 15: Adverse Selection
16 Apr 2018
School
Department
Course
Professor
Document Summary
Insurance: an increase in risk: if the risk of an accident increases, the expected cost per person increases, so the premium increases, adverse selection. Screening and signaling: the company wants to screen consumers into the appropriate risk group, low risk consumers want to signal their risk group. Ordinal utility: law of demand ( p increases, quantity demanded decreases) Max utility: how change a ects them. Indi erence curves: for simplicity, assume the person consumes two goods, the consumer is indi erent among any combination of goods on an indi erence curve, marginal rate of substitution (mrs) The magnitude of the slope of an indi erent curve: decreasing marginal rate of substitution. The mrs decreases moving downward along an indi erence curve.
