Consider an insurance company offer a "standard contract" with the premium r= $100 and payout q=$500to anyone who will purchase it.Peter has healthy-state income IH $500 and sick-state income Is $0.He has probability of illness p=0.1. Is the standard contract fair and/or full for Peter? If he ends up gettingsick, what will his final income be? (please show all your calculations)

Fair price of insurance is said to be that value which is equal to the all expected losses , or…

Consider an insurance company offer a "standard contract" with the premium r-$100 and payout q-$500 to anyone who will purchase it. Peter has healthy-state income In- $500 and sick-state income Is $0. He has probability of illnessp-0.1. Is the standard contract fair and/or full for Peter? If he ends up getting sick, what will his final income be? (please show all your calculations)

Consider an insurance company offer a "standard contract" with the premium r-$100 and payout q-$500 to anyone who will purchase it. Peter has healthy-state income In- $500 and sick-state income Is $0. He has probability of illnessp-0.1. Is the standard contract fair and/or full for Peter? If he ends up getting sick, what will his final income be? (please show all your calculations)

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter16: Information, Risk, And Insurance

Section: Chapter Questions

Problem 10RQ: In an insurance system, would you expect each person to receive in benefits pretty much what they...

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