Jennifer and David are risk-averse and both own residential homes worth $500,000. Jennifer’s home is comprised of brick construction and is located…

4. Jennifer and David are risk-averse and both own residential homes worth $500,000. Jennifer’s home is comprised of brick construction and is located in the Mohave Desert. David’s home is comprised of wood construction and is located in the San Bernardino national forest. If all owners of 500,000 residential properties must pay the same premium for home fire insurance, explain which consumer, Jennifer or David, is more likely to buy home insurance?

5. Does your answer in Q4 above imply a market failure problem for the insurance company and/or consumers of insurance?

 
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