Consider a Market for Health Insurance with 1,000 Potential Buyers

Multiple Choice

Consider a market for health insurance with 1,000 potential buyers. The insurance company knows that half of the potential buyers are of poor health and will cost the insurance company $40,000 annually, while the other half are of good health and will cost the insurance company $10,000 annually. However, the insurance company does not know which individual people are of poor health or good health. The potential buyers know whether they are of poor health or good health. What would be the equilibrium price of an insurance policy in this market?

A) $25,000
B) $40,000
C) $10,000
D) None of these are correct.