Producer theory Flashcards
Factors of production
Inputs - an economic good used int eh production of another economic good
Transformation
production factor combination
Products
Outputs
Factor price
The price for inputs on the market
Whare the three ways of classifying production factors
- Real tangible goods
- Real intangible goods
- Nominal goods
Real tangible goods
Machines, buildings ….
Real intangible goods
Work performance, services ….
Nominal goods
Money
Classification of where production factors come from (2)
- Ordinary/primary production factors - bought from the market. Eg standardised software
- Derivative (secondary) production factors - produced by the business eg individual software
Classification of production factors in the way of utilisation in the production process
- Potential: Used for a longer period of time
- Consumption factors: used once and then it is gone
Classification of production factors in the scope of employment in the production process
- General production factors: Contribute the production of more than one good
- Special production factors: contribute to the production of only one product and outputs
Production function
Shows the quantitative connection between production factors and outputs
What does a normal production function look like
output =f(input)
What does an inverse production function look like
Input = f(output)
Limitational production function
Requires a set number of specific inputs to produce an output
Substitutional production function
Outputs can be produced with different quantities of inputs
What type of production function do services have?
Inverse
What are the 3 areas of business in an insurance company
Insurance business, capital investment, other businesses
What are the 3 areas of the insurance business
Risk business, Savings and dissaving business and service business
Risk business
The core business of balancing risks
Savings and dissaving business
Pensions and annuities
Services business
Consulting, risk management, sales processing, claims settling
Capital investment business
Lined to the insurance business because there are financial funds which have to be invested
What are important considerations for the investment business in terms of weather to hold a risk reserve (3)
- Premiums can be invested as long as they don’t get used for claims settlements
- Risk reserves can be invested if they are not put into risk reserves
- Opportunity cost of risk reserves
Other businesses
Financial services, consulting, data processing….
What is the output of the insurance industry
Insurance protection
How does insurance protection differ from indemnity
Indemnity happens when there is a loss, it may or may not happen. Protection is constantly produced. There is a temporal dimension to insurance protection that indemnity does not have.
How is risk transfer different to the normal production function besides it being inverse (3)
- Intangible
- Cant be stored
- Unique to each customer
What are the 6 production factors of the insurance
- Money for indemnity
- Reinsurance
- Contracts concluded
- Infromation
- External factors
- Utilisation of capital
What are the 2.5 derivative or secondary inputs insurance
Contracts concluded, information, utilisation of capital
Money for indemnity
The money used to pay claims
Money for indemnity: What type of good is this (nominal, tangible or intangible)
Nominal - paid out in cash
Money for indemnity: classification in terms of utilisation)
Consumption factor - when its gone its gone
Utilisation of capital
Store money and capital investments for the amount of the expectancy value of future payments and safety capital
The utilisation of capital: classification in terms of utilisation
Potential factor - because this is not safety capital
Reinsurance: classification in terms of utilisation
Potential factor because it is usually held on to
why are Contracts concluded needed
A large number of contracts are needed for risk balancing process
Contracts concluded: classification in terms of utilisation
Potential factor because they are used for risk balancing
How can insurers get more contracts concluded
Mergers and acquisitions
External factor
Input from the insured is necessary to produce insurance
Stochastic
Measurable on a probability distribution
Stochastic production in insurance
The amount of money for indemnities is Stochastic
What are the 2 main variables that an insurer must choose between in production?
Reinsurance and retention/money for indemnities
What is the insurers objective
Profit
When will substitution of safety and reinsurance continue until
The point where the marginal utility = the marginal disutility
What external factors will affect the rate of substitutions between retention and reinsurance
solvency requirements
If reinsurance is taken what decreases
- Premuim of own acconts
- Losses from damage insured to own account
- Reserve requirements as reinsurance does not require reserves.
Surplus relief contract
Designed to control the primary insurers solvency
Where do we see surplus relief contracts commonly in what type of reinsurance
High quota reinsurance
