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Americans spend over \$2,100 a year on which of the following?
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5. Consumer and Producer Surplus; Price Ceilings and Price Floors
Willingness to Pay and Consumer Surplus
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You pay more for insurance coverage if you drive a lot because:
A
Government regulations require higher premiums for all drivers.
B
Your likelihood of filing a claim increases with more driving.
C
Driving more reduces the risk of accidents.
D
Insurance companies offer discounts to frequent drivers.
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Understand the relationship between driving frequency and insurance premiums: Insurance companies assess risk based on how likely a driver is to file a claim.
Recognize that driving more increases exposure to potential accidents, which raises the probability of filing a claim.
Know that insurance premiums are set higher for drivers with higher risk to cover the expected costs of claims.
Identify that government regulations do not mandate higher premiums for all drivers regardless of risk; premiums are risk-based.
Conclude that the correct reason for paying more when driving a lot is that your likelihood of filing a claim increases with more driving.
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