1. Pam is a low-risk careful driver and Fran is a high-risk aggressive driver. What might an auto-insurance company do to get Pam and Fran to reveal their driver type?

2. Using Figure 12.6, show the deadweight losses that arise in an equilibrium without screening that are avoided in a separating equilibrium with screening.

Figure 12.6

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Premium (dollars per year) 1,600 1,400- 1,200 1,000 800 600 0 20 (a) Careful drivers Equilibrium without screening 40 60 No claims and high deductible: lower premium 80 S MCC Dc 100 120 Policies (millions) Premium (dollars per year) 1,600 1,400 1,200 1,000 800 600 0 3 Claims and low deductible: higher premium 20 40 60 (b) Aggressive and careless drivers 80 Equilibrium without screening MCA S DA 100 120 Policies (millions)