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 $50,000 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. If the insurance company sets the price of the insurance policy at $30,000, _____ people will purchase insurance, and the average per-person cost incurred by the insurance company will be _____.

A) 500; $40,000
B) 1,000; $10,000
C) 1,000; $30,000
D) 500; $50,000