Certainty Utility D 200 198 194 D' Total utility 170 Expected Utility of wealth A 140 10,000 15,000 19,000 20,000 Wealth FIGURE 8-1 Total Utility of Wealth and the Impact of Insurance a. Please explain the difference between the certainty utility line and the expected utility b. Calculate your E(U), given an 80% change of being healthy and 20% of being sick, knowi that your income falls to $10,000 and your utility is 140 if you get sick. c. Calculate your E(W), given an 80% change of being healthy and 20% of being sick. d. Given that your Certainty Utility Function is U = 200Y-0.00154 and Y is your income, what : your Certainty Utility with insurance (if you are risk averse) e. What insurance premium will you pay to guarantee a utility of 197? Please provide a calculation.
Certainty Utility D 200 198 194 D' Total utility 170 Expected Utility of wealth A 140 10,000 15,000 19,000 20,000 Wealth FIGURE 8-1 Total Utility of Wealth and the Impact of Insurance a. Please explain the difference between the certainty utility line and the expected utility b. Calculate your E(U), given an 80% change of being healthy and 20% of being sick, knowi that your income falls to $10,000 and your utility is 140 if you get sick. c. Calculate your E(W), given an 80% change of being healthy and 20% of being sick. d. Given that your Certainty Utility Function is U = 200Y-0.00154 and Y is your income, what : your Certainty Utility with insurance (if you are risk averse) e. What insurance premium will you pay to guarantee a utility of 197? Please provide a calculation.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please all solve the issue
Transcribed Image Text:ease use utility of wealth function in the booK, 8-1 (see below).
Certainty
Utility
B
D
200
198
194
D'
Total utility 170
of wealth
C'
Expected Utility
A
140
10,000
15,000
19,000 20,000
Wealth
FIGURE 8-1 Total Utility of Wealth and the Impact of Insurance
Please explain the difference between the certainty utility line and the expected utility line
b. Calculate your E(U), given an 80% change of being healthy and 20% of being sick, knowing
that your income falls to $10,000 and your utility is 140 if you get sick.
Calculate your E(W), given an 80% change of being healthy and 20% of being sick.
d. Given that your Certainty Utility Function is U = 200Y-0.00154 and Y is your income, what is
your Certainty Utility with insurance (if you are risk averse)
What insurance premium will you pay to guarantee a utility of 197? Please provide a
calculation.
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