In Argonia the average rate drivers pay for car accident insurance is regulated to allow insurance companies to make a reasonable profit. Under the regulations, the rate any individual driver pays never depends on the actual distance driven by that driver each year. Therefore, Argonians who drive less than average partially subsidize the insurance of those who drive more than average.
The conclusion above would be properly drawn if it were also true that in Argonia
- the average accident insurance rate for all drivers rises whenever a substantial number of new drivers buy insurance
- the average cost to insurance companies of insuring drivers who drive less than the annual average is less than the average cost of insuring drivers who drive more than the annual average
- the lower the age of a driver, the higher the insurance rate paid by that driver
- insurance company profits would rise substantially if drivers were classified in terms of the actual number of miles they drive each year
- drivers who have caused insurance companies to pay costly claims generally pay insurance rates that are equal to or lower than those paid by other drivers
Highlight to see answer: B
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