Answer to Question #152733 in Management for Indira

Question

Insurance agents receive a commission on the policies they sell. Many states regu

late the rates that can be charged for insurance. Would higher or lower rates in

crease the incomes of agents? Explain, distinguishing between the short run and the

long run.

Answer 1

Increasing the rates in the short run an have a positive effect on the income of insurance seller. However in the long run, it will reduce their income. This is because, increasing the rates of insurance by government makes insurance premiums expensive. This in return reduces the rate of uptake of insurance, which in the short run can make people selling insurance earn more, but in the long run, earn less due to less market for the insurance.