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IAI Actuarial Core Principles · Business Economics · How competitive markets operate

Health insurance is a normal good for most Indian households. Following a sustained rise in average household incomes, which effect on the market demand curve for individual health policies is most likely, other things equal?

The demand curve shifts rightward. For a normal good, higher incomes raise the quantity demanded at every premium level. Because the premium itself has not changed, this is a shift of the curve rather than a movement along it.

  1. AMovement down along the existing demand curve
  2. BMovement up along the existing demand curve
  3. CRightward shift of the demand curveCorrect
  4. DLeftward shift of the demand curve
  5. No change, because insurance demand depends only on premium

Explanation

For a normal good, higher income increases demand at every price, shifting the curve to the right. Premium is not what changed, so there is no movement along the curve. Option 4 would apply to an inferior good.

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