Question

With signals from no-claim bonuses and deductibles, O A. most drivers pay higher premiums than if the market had no signals O B. the marginal cost curve for careful drivers lies to the left of the marginal cost curve for aggressive drivers O C. auto insurance companies insure more aggressive drivers than careful drivers because aggressive drivers have a greater need for the insurance O D. the market for car insurance has a separating equilibrium, and the market is efficient

Answer 1

In case the market participants are able to receive signals from no claim bonuses and deductibles, they will use the available information completely which will result in a separating equilibrium making the market efficient. This happens because market participants make use of the perfect information available to them.

Select option D