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The Cascade Life Insurance Company offers a wide variety of insurance products, including whole-l...

The Cascade Life Insurance Company offers a wide variety of insurance products, including whole-life and term policies. The company has compiled the following data concerning policy sales during recent years:

Year Whole-Life Whole-Life Term Insurance Quantity Insurance Price Price

2014 $2.00 240,000 $1.50

Term Quantity

100,000 130,000 150,000 200,000 270,000

2015 2.00 2016 1.90 2017 1.80 2018 1.80

200,000 1.45 230,000 1.45 280,000 1.40 238,000 1.33

Prices are expressed in thousands of dollars.

  1. Calculate and interpret the average arc price elasticity of demand for whole-life insurance.
  2. Calculate and interpret the average arc price elasticity of demand for term insurance.
  3. Evaluate the average percentage change in whole-life demand given a 1% change in the price of term insurance. Is term insurance a substitute for whole-life?
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Answer #1

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