Multiple choice

Directions: For this question, select the best of the answer choices given.

In 1960, 10 percent of every dollar paid in automobile insurance premiums went to pay costs arising from injuries incurred in car accidents. In 1990, 50 percent of every dollar paid in automobile insurance premiums went toward such costs, despite the fact that cars were much safer in 1990 than in 1960. Which of the following, if true, best explains the discrepancy outlined above?

  1. There were fewer accidents in 1990 than in 1960.

  2. On average, people drove more slowly in 1990 than in 1960.

  3. Cars grew increasingly more expensive to repair over the period in question.

  4. The price of insurance increased more rapidly than the rate of inflation between 1960 and 1990.

  5. Health-care costs rose sharply between 1960 and 1990.
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

E is correct because if healthcare costs rose sharply between 1960 and 1990, this would explain why a much larger percentage of insurance premiums went toward injury costs in 1990 - even if cars were safer, the medical treatment for those injuries cost much more. A would make the discrepancy harder to explain - fewer accidents should mean lower costs, not higher. B doesn't explain why costs rose as a percentage of premiums. C discusses repair costs, not injury costs, so it is irrelevant. D discusses insurance prices generally, not specifically injury-related costs, so it doesn't explain the shift.

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