Assume you have £300,000 worth of assets (W). This includes savings, property and your car. You use the car to drive to school/university every day and there is a 1 in 20 (or 5 per cent) chance per year that you will be involved in an accident that results in the car being a write-off. Assume its market value is £40,000 and remains the same i.e. it does not depreciate. You can take out a full insurance policy for the year that pays out the full £40,000 market value of the car if you have the accident. Assume the insurance company has many customers with exactly the same assets as you and who all face the same risk of being involved in a similar accident. 9. Assume the administration costs for the insurance company are £10 per customer. Explain how mutually beneficial trade is possible over a range of prices. Calculate the individual consumer and producer surplus at one particular price.

Answer rating: 100% (QA)

Answer 1 Mutually beneficial trade It refer to the trading price agreed upon by two parties seller and buyer which when beneficial will allow both countries to enjoy gains from trade 2 Producers surpl... View the full answer