austian health economics. Consider Figure 11.10, which shows the locus of feasible contracts for the population of the nation of Pcoria. In which corner of this diagram (northeast, southeast, northwest, or southwest) is utility highest for consumers? What prevents insurance companies from offering contracts in this corner? On your own version of Figure 11.10, plot new points to represent where the market would be under (i) a nationally mandated full insurance policy and (ii) an insurance ban. (Please draw a diagram) Would a nationally mandated full insurance policy be optimal for Pcoria? What about an insurance ban? Suppose the devil approaches the newly elected president of Pcoria with an unusual bargain. He offers to magically eliminate moral hazard, but in return, Pcoria must forbid contracts that are more than half full. On a new version of Figure 11.10, draw a new locus of the contracts that would be feasible if the president takes the devil's bargain. Should the president take the devil's bargain? Why or why not? The indifference curves in Figure 11.10 represent one possible set of preferences for the Pcorian society. On a new figure, draw an alternative set of indifference curves such that the bargain is a good deal relative to the status quo. Which type of society is more likely to accept the devil's bargain: one that is relatively risk-neutral or one that is relatively risk-averse? Explain why your answer makes intuitive sense

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Faustian health economics. Consider Figure 11.10, which shows the locus of feasible contracts for the population of the nation of Pcoria.

In which corner of this diagram (northeast, southeast, northwest, or southwest) is utility highest for consumers? What prevents insurance companies from offering contracts in this corner?
On your own version of Figure 11.10, plot new points to represent where the market would be under (i) a nationally mandated full insurance policy and (ii) an insurance ban. (Please draw a diagram)
Would a nationally mandated full insurance policy be optimal for Pcoria? What about an insurance ban?
Suppose the devil approaches the newly elected president of Pcoria with an unusual bargain. He offers to magically eliminate moral hazard, but in return, Pcoria must forbid contracts that are more than half full. On a new version of Figure 11.10, draw a new locus of the contracts that would be feasible if the president takes the devil's bargain.
Should the president take the devil's bargain? Why or why not?
The indifference curves in Figure 11.10 represent one possible set of preferences for the Pcorian society. On a new figure, draw an alternative set of indifference curves such that the bargain is a good deal relative to the status quo.
Which type of society is more likely to accept the devil's bargain: one that is relatively risk-neutral or one that is relatively risk-averse? Explain why your answer makes intuitive sense.

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Figure 11.10. The locus of
feasible contracts with moral
hazard.

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