Note: the answer should be typed.

4. Consider the situation described in Table I in which two types of individual face, with some probability, two possible states of the world. State Individual Type Probability Wealth H (1- PH ) H PH VI = Wi - L L (1 - PL) W, = W -L Table I Assume that p, > p, and that the population, n, is comprised of n, 'low risk' and ny high risk' individuals such that n= n, +my. Assuming a competitive market for insurance, illustrate the nature of an equilibrium that might arise under: (a) symmetric information; and (b) asymmetric information