defined as a group that shares roughly the same risks of an adverse event occurring.

Insurance companies often classify people into risk groups, and charge lower premiums to those with lower

risks. If people are not separated into risk groups, then those with low risk must pay for those with high risks.

In the simple example of how car insurance works, 60 drivers had very low damage of $100 each, 30 drivers

had medium-sized accidents that cost $1,000 each, and 10 of the drivers had large accidents that cost $15,000.

If all 100 of these drivers pay the same $1,860, then those with low damages are in effect paying for those with

high damages.

If it is possible to classify drivers according to risk group, then the insurance company can charge each group

according to its expected losses. For example, the insurance company might charge the 60 drivers who seem

safest of all $100 apiece, which is the average value of the damages they cause. Then the intermediate group
{"file_hash": "830b81f41611ac67a490444dbb5d6aed292224606965b06965b914443c93331a", "batch_upload": true, "source": "downloads\\business\\economics\\Microeconomics3e.pdf", "file_size_mb": 26.99, "producer": "Prince 14.2 (www.princexml.com)", "creator": "PDFMiner", "upload_timestamp": "2026-02-07T15:24:38.309401", "file_type": ".pdf", "moddate": "2022-12-07T14:23:05-06:00", "uploaded_via": "batch_uploader", "creationdate": "2022-12-07T14:15:44-06:00", "total_pages": 597, "source_file": "downloads\\business\\economics\\Microeconomics3e.pdf", "file_name": "Microeconomics3e.pdf", "title": "Principles of Microeconomics 3e"}