Question

Instead of a subsidy, suppose that the government mandates that all individuals have insurance and, therefore, must buy it. Would the market for insurance then clear? Explain.

Answer 1

Soln. Providing insurance for purchasing items, would influence the people in getting free insurance from the government. Since, it comes as a free package with purchase of items, people will be more interested in getting such insurance as its double benefits for them, rather than purchasing insurance from private companies, which would be costly and extra expense for them. Such, option by the government would work as a competitor for the insurance market and will reduce the demand of their insurances.This will lead to the insurance market reduced size and growth.