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- 4. Amy's utility level (U) depends on the amount of wealth (W) she possesses and it can be represented by U the wealth drops to $4,840,000. 3Y0.5. At good state, Amy's wealth is $6,250,000 while at bad state, (a) What is the difference in Amy's utility level if she goes from a good state to a bad state? (b) For a probability of illness of 15%, would Amy buy health insurance to protect herself against any loss of wealth? Explain. (c) How much would Amy be charged for a health insurance (i.e. What is the pure premium)? (d) Compute the risk premium for the case of Amy. (e) Graph your solutions to parts (a) to (d) in one diagram.What is social referencing? How does it function in infancy and what does it imply about infants' growing social capabilities?Edna is living in a retirement home where home where most of her needs are taken care of, but she has some discretionary spending. Based on the basket of goods in Table 22.5, by what percentage does Ednas cost of living increase between time 1 and time 2
- The following graph shows the budget constraint for a household who has to choose between consumption goods and health care services. Please explain tho difference between the two lines. Budget constraint Corsumer goods X Y(H) = pX + qM Y(H) = pX + qM Haalth care services M Y-Incone H=health ppeice of consunmer goods 9*peice of healh care servicesExercise 3 An individual lives two periods, 0 and 1. The income is 14,000 in period 0 and 5,000 in period 1. The individual's marginal utility is: K- Co in period 0 and d8(K – C1) in period 1, where C is the consumption in period 0, C1 the consumption in period 1 and d a discount rate. K is a constant (higher than the consumption in each period). Suppose that the person can save or borrow from the bank from period 0 to period 1 with a 25% interest rate. Set the discount rate & to 0.8. a) How much will the individual consume in the two periods? How much will she save? b) A National Insurance scheme (pension system) is established. The individual must pay 4,500 in period 0 and receives the same amount with interests in addition to her income in period 1. What will the consumption and savings be in the two periods if the National Insurance scheme uses the same interest rate as the bank?How do low-income families differ from high-income families in terms of their spending habits?
- Explain how does adecrease in the current income y affect the consumer’s consumption-saving decision. In particular,explain: 1) How will current consumption c, future consumption c', and savings s change; 2) Arethere any substitution effect or income effect. Make sure you draw two figures, one for the borrowersand one for the lenders.1. Which of the following represents the household's lifetime budget constraint? a. q +a₂ = 1 b. c₂ = 1/₂+(1+m₂)a₂ c₁+c₂/(1+₂) = 1 +32/(1+12) d. U = Inc + Blnc₂ 2. Which of the following are choice variables of the household? a. Yl b. y2 C₁ d. 12 3. If the household can borrow and lend, an increase in y₁ causes which of the following to increase? a. C1 C2 c. 92 d. all of the above 4. For a household that can borrow and lend, the horizontal intercept of a sketch of the lifetime budget constraint is a. Y1 by₁+ 1 y2 1+12 c. Y2 d. (1+12)y1+y2 5. Suppose a household can borrow and lend in a perfectly competitive credit market. Assume B=0.2 and r2 = 0.10. The value for the optimal choice of a2 when y₁ = 10 and y2 = 0 is a. 1.67 b. 0.00 c. -5.91 (d)-7.58Why tY not substituted for T?
- 1. Identify some reasons why household income differ. Which factor is the most important? 2. Consumer choice theory assumes that consumer are rational but we observe a person behaving differently in apprantly similar situations. Is it realistic to think that we account for rational behaviour in every situation?Saved to this PC V ut References A A Aa x² A a. b. C. O Search (Alt+Q) Mailings Review View Help Du A A EEE ΕΞ ΑΙ ¶ ↓ E- Paragraph LO Value of first donut Value of second donut Value of third donut Value of fourth donut Value of fifth donut Value of sixth donut S Normal Problem 1 Tammy loves donuts. The table shown reflects the value Tammy places on each donut she eats: $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 If the price of donuts is $0.20, how-many donuts will Tammy buy? Why? Body Text How much consumer surplus would she have at a price of $0.20? Styles m If the price of donuts rose to $0.40, how many donuts would she purchase now? What would happen to Tammy's consumer surplus?Why is it helpful to track your spending for 2 months?a. You can receive higher interest rates for your savings account when you canshow how you spend your money.b. You can receive special discounts at certain stores when you can show howyou spend your money.c. To identify your spending patterns and then prioritize your needs, wants, andsavings goals.d. To eliminate all spending on your want