Insurance Revenues Microeconomics

When a company decides to change the price of a product, it knowsthe demand for that product will change as a result. Elasticitymeasures this change in demand as a result in the change in price.

In an effort to increase revenue for the insurance industry, allinsurance companies increased prices by 20 percent. To its dismay, onlya 10% increase in revenue was received instead of the 20% increasethat was expected.

Prepare an essay that addresses the following questions:

  • What does this say about the elasticity demand for insurance products?
  • What were the insurance companies assuming the elasticity demand would be?

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