In a pooling equilibrium in which all potential customers attend safety school, the insurance company will charge
A) the same price for everyone
B) a higher price for risky people
C) a higher price for safe people

Question

Quizplus · Accepted Answer

In a pooling equilibrium, all potential customers attend safety school, meaning they have the same level of risk. Therefore, the insurance company can charge the same price for everyone without facing adverse selection. If they were to charge a higher price for risky people or safe people, it would create the possibility of certain individuals opting out of safety school, leading to adverse selection and potentially causing the insurance company to lose money.

In a Pooling Equilibrium in Which All Potential Customers Attend