Multiple Choice
Which of the following lists correctly identifies the four factors of production in economics?
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0. Basic Principles of Economics
Factors of Production
Multiple Choice
Male drivers under 25 are charged for insurance at a higher rate because:
A
statistical evidence shows they are more likely to be involved in accidents, increasing expected costs for insurers
B
young male drivers have higher incomes and can afford higher premiums
C
insurance companies are legally required to charge higher rates to young male drivers
D
male drivers under 25 typically purchase more expensive cars
Verified step by step guidance1
Understand the concept of risk-based pricing in insurance, where premiums are set according to the expected cost of claims based on statistical evidence.
Recognize that insurance companies use historical data to estimate the likelihood of different groups being involved in accidents, which affects the expected payout.
Identify that male drivers under 25 statistically have a higher probability of accidents, leading to higher expected costs for insurers.
Note that higher expected costs translate into higher insurance premiums to cover potential claims and maintain profitability.
Eliminate other options by considering legal requirements, income levels, and car prices, which are not the primary reasons for higher premiums in this context.
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