The Cascade Life Insurance Company Offers A Wide

Question

The Cascade Life Insurance Company offers a wide variety of insurance products, including whole-l…

The Cascade Life Insurance Company offers a wide variety of
insurance products, including whole-life and term policies. The
company has compiled the following data concerning policy sales
during recent years:

Year Whole-Life Whole-Life Term Insurance Quantity Insurance
Price Price

2014 $2.00 240,000 $1.50

Term Quantity

100,000 130,000 150,000 200,000 270,000

2015 2.00 2016 1.90 2017 1.80 2018 1.80

200,000 1.45 230,000 1.45 280,000 1.40 238,000 1.33

Prices are expressed in thousands of dollars.

  1. Calculate and interpret the average arc price elasticity of
    demand for whole-life insurance.
  2. Calculate and interpret the average arc price elasticity of
    demand for term insurance.
  3. Evaluate the average percentage change in whole-life demand
    given a 1% change in the price of term insurance. Is term insurance
    a substitute for whole-life?

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