Consider a worker, Janice, who has the option to purchase DI (disability insurance) on the private market. Janice becomes disabled with probability q = 0.01. She can purchase DI by paying the premium p. If the Janice is disabled, she will earn no income. But if she is insured, she will receive a total payment of $15,000 from the insurance company (her consumption will be $15,000). If the Janice is not disabled, she earns an income of $20,000. She has utility: U = 3ci where C is the amount of consumption. a. Determine Janice's expected income without insurance. b. Determine Janice's expected utility without insurance.

Consider a worker, Janice, who has the option to purchase DI (disability insurance) on the private market. Janice becomes disabled with probability q = 0.01. She can purchase DI by paying the premium p. If the Janice is disabled, she will earn no income. But if she is insured, she will receive a total payment of $15,000 from the insurance company (her consumption will be $15,000). If the Janice is not disabled, she earns an income of $20,000. She has utility: U = 3ci where C is the amount of consumption. a. Determine Janice's expected income without insurance. b. Determine Janice's expected utility without insurance.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.9P

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