Determining an Insurance Payout Basis
The Bianchi family in Milan buys an insurance policy that provides a payment if the average home price in the city decreases. After one year, an official report shows that the city-wide average home price has fallen by 6%. During that same year, the Bianchi family's next-door neighbor sold their property to a developer who began a loud, disruptive construction project, causing the market value of the Bianchi's individual home to fall by 10%. Based on the principles of this type of insurance, which percentage is used to calculate the Bianchi family's insurance payment, and why?
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
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A homeowner in Milan purchases an insurance policy that provides a payout if the city's average home price index falls. Over the next year, the homeowner neglects basic maintenance, and the market value of their specific house drops by 10%. In the same period, the city-wide average home price index actually increases by 2%. Based on the structure of this insurance, what is the outcome for the homeowner?
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