Indicate whether the statement is true, false, or unclear, and justify your answer.Ex post risk is typically much lower than ex ante risk because uncertainty is largely eliminated by the purchase of an insurance contract.
Q: Suppose a company offers a standard insurance contract with a premium (r) of $2,000 and a payout (q)…
A: Given that: Premium (r) = $2000Payout (q)= $10000Healthy state Income Ih = $70000Sick state Income…
Q: When a life-long smoker attempts to purchase a life insurance policy Group of answer choices the…
A: Answer: When a life-long smoker attempts to purchase a life insurance policy (and he/she does not…
Q: Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for…
A: The equilibrium price of good quality car PGood =$20,000 The equilibrium price of poor quality car…
Q: Uncertainty and willingness to pay for insurance. Utility = (Wealth)1/3 Prob(flood) = .04 Prob(no…
A: Note: Since, you've posted question with multiple sub-parts, we will solve the first the first three…
Q: Draw a graph with utility on the Y axis and income on the X axis for a risk averse person. Label the…
A: Risk-averse people will not be willing to take risks.
Q: The difference between the actuarily fair price for insurance and the price a risk-averse individual…
A: To Find: Difference between the actual fair price for insurance and, the price a risk- averse…
Q: 50–50 chance that an individual with log- arithmic utility from wealth and with a current wealth of…
A: Given: Probability chance of individual with log- arithmic utility: 50–50 current wealth=$20,000…
Q: Consider the following example. A risk-neutral worker can choose high or low effort. The worker's…
A: Expected value is a calculation of what you should expect to get per game in the long term. The…
Q: Consider the following example. A risk-neutral worker can choose high or low effort. The manager…
A: Given, Low Effort: Cost of Effort : $0 Probability of Low Revenue ($100): 75% Probability of High…
Q: Suppose that there is asymmetric information in the market for used cars. Sellers know the quality…
A: Given:The buyers know the probability of getting a lemon car = 30%Price of high quality used car =…
Q: Suppose in a given state's new insurance marketplace, with community rating and no restrictions on…
A: When one of the insurers is allowed to charge any premium to the people and also allowed to exclude…
Q: Consider the model of competitive insurance discussed in lectures (Topic 6.7). Peter is a risk…
A: In a competitive insurance market the fair premium price is equal to the expected value of the loss…
Q: You have a car valued at Gh60, 000. You estimate that there is a 0.1 percent chance that your car…
A: In Economics, Risk neutral preferences are preference that are neither risk averse nor risk lover. A…
Q: Under symmetric information, competitive insurance markets would offer A) complete coverage to high…
A: The insurance contract deals with the transferring of risk from consumer to firm. The symmetric…
Q: Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for…
A: If the seller sells a bad quality car then the net gain is equal to the price received for bad…
Q: The owner of a chain of bicycle stores are uncertain whether on of their shops is covered under…
A: In a market, producers get some security or provision from the government to protect them…
Q: Distinguish between adverse selection and moral hazard as they relate to the insurance industry
A: Economics is a branch of social science that describes and analyzes the behaviors and decisions…
Q: Indicate whether the statement is true or false, and justify your answer.Risk-averse consumers…
A: Sometimes the consumer who is a risk-averse will choose full insurance to not full insurance even it…
Q: why is adverse selection important in healthcare insurance markets.
A: When talking about healthcare insurance market, it can be said that it is the market for the people…
Q: Adverse Selection refers to a situation in insurance markets in which individuals change their…
A: Adverse selection and moral hazard are topics of risk management and insurance, It describes a…
Q: Consider an insurance company offer a "standard contract" with the premium r-$100 and payout q-$500…
A: Fair price of insurance is said to be that value which is equal to the all expected losses , or…
Q: 6. How would you expected utility change by buying full insurance as opposed to partial (1/2) for an…
A: Utility:The utility is want satisfying power of a commodity. It can be expressed in cardinal and…
Q: Suppose that a person's utility function is the square root of wealth. Suppose the person earns…
A: Utility function indicates the satisfaction an individual earns from consumption. Consumption being…
Q: Ex-ante risk (such as adverse selection) is greater than ex-post risk (such as moral hazard) True…
A: Ex-ante refers to the events to occur in the future like potential returns of a firm or security. In…
Q: Suppose that there is asymmetric information in the market for used cars. Sellers know the quality…
A: Asymmetric information refers to the gap in the information available to the buyers and sellers in a…
Q: Suppose in a given state's new insurance marketplace, with community rating and no restrictions on…
A: A form of risk management that practiced by the insurance companies known as risk pool.
Q: Insurance mandates do little to combat the problem of adverse selection. True False
A: Insurance is a way to manage your risk. When you buy insurance, you purchase protection against…
Q: Insurance coverage has been shown to diminish the importance of time in the decision about how much…
A: Once a person purchases health insurance, he or she is likely to spend a lesser amount of time in…
Q: Consider the model of competitive insurance discussed in lectures (Topic 6.7). Peter is a risk…
A: Utility function can be defined as the measure for a group of goods and services preferred by…
Q: Suppose that there is asymmetric information in the market for used cars. Sellers know the quality…
A: Asymmetric information refers to the situation when any of the trading partners has relatively more…
Q: A risk-neutral plaintiff in a lawsuit must decide whether to settle a claim or go to trial. The…
A: When deciding on uncertain incomes from payoff strategies, consumers look at the concerned risks.…
Q: Consider an individual who has a healthy state income of $10,000 and a sick state income of $2,000.…
A: People get health insurance in order to prevent themselves against the risk of getting sick by…
Q: Lucy, the manager of the medical test firm Dubrow Labs, worries about the firm being sued for…
A: Risk managers utilise probability analysis as a tool to predict upcoming events, such as accidental…
Indicate whether the statement is true, false, or unclear, and justify your answer.
Ex post risk is typically much lower than ex ante risk because uncertainty is largely eliminated by the purchase of an insurance contract.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- Adverse Selection refers to a situation in insurance markets in which individuals change their behavior after obtaining coverage, resulting in increased insurance costs True or FalseUnder symmetric information, competitive insurance markets would offer A) complete coverage to high and low risks but, respectively, with high and low premia. B) incomplete coverage to both high and low risks. C) complete coverage to high and low risks but, respectively, with low and high premia. D) complete coverage to low and incomplete coverage to high risks. E) complete coverage to high and incomplete coverage to low risks.Suppose in a given state's new insurance marketplace, with community rating and no restrictions on who can buy at the community rate, the risk pool (distribution of expected health costs) is as follows: 30% of eligible enrollees' expected health costs = $1,000 (per year)65% of eligible enrollees' expected health costs = $2,0005% of eligible enrollees' expected health costs = $10,000 Now suppose one insurer, and one insurer only, were allowed to offer any premium it wanted to any potential buyer and to exclude those it did not want to cover? What premium would they likely charge and who would they sell to and who would they exclude? What would happen to the other insurers? Does this help you see why the ACA was written to apply to all insurers?
- Suppose that a person's utility function is the square root of wealth. Suppose the person earns $100,000 per year. He or she has an illness with a probability of 0.2, and the cost of the treatment is $30,000. Would the person pay $6,000 for insurance? Why or why not? What is the most this person would pay to be insured (hint: equate expected utility to utility with certainty)? Suppose their utility function changed to wealth squared (hint: are they now risk averse?). Would they pay $6,000 for insurance? Why or why not?Indicate whether the statement is true or false, and justify your answer.Risk-averse consumers always prefer insurance that is actuarially fair but not full to full insurance that is actuarially unfair – but the opposite is true for risk-loving consumers.Draw a graph with utility on the Y axis and income on the X axis for a risk averse person. Label the following points on the Y axis The expected value of utility while uninsured The expected value of utility with actuarially fair, full insurance The expected value of utility with actuarially far, partial insurance
- Lucy, the manager of the medical test firm Dubrow Labs, worries about the firm being sued for botched results from blood tests. If it isn't sued, the firm expects to earn profit of $120, but if it is successfully sued, its profit will be only $20. Lucy believes that the probability of a successful suit is 20%. If fair insurance is available and Lucy is risk averse, how much insurance will she buy? Lucy will buy insurance that costs her $ when not successfully sued. (Enter your response as a whole number.)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 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 getting sick, what will his final income be? (please show all your calculations)Insurance coverage has been shown to diminish the importance of time in the decision about how much medical care to seek and which providers to use. True OR False
- The owner of a chain of bicycle stores are uncertain whether on of their shops is covered under their commercial general liability policy. To verify coverage, they should check which of the following policy provision? Condition Declaration other insurance insuring agreementConsider the following example. A risk-neutral worker can choose high or low effort. The worker's outside option is 0. The manager cannot observe the worker's action, but the manager can observe the realized revenue for the firm (either $100 or $200). The probability of each revenue depends on the worker's effort: Low effort: cost of effort : $0 probability of low revenue ($100): 75% probability of high revenue ($200) : 25% High effort: cost of effort : $11 probability of low revenue ($100): 25% probability of high revenue ($200) : 75% The manager offers a contract which gives the worker a flat wage of $10 and a bonus of $20 if revenue is high. Given this payment scheme, the worker will put in ✓effort. The contract (is/is not) ✓incentive compatible. The firm's expected profit is $ The firm is considering an investment that would increase worker morale. By making work more enjoyable, the program would reduce the worker's cost of effort from $11 to $9. If it costs the firm $20 to…Suppose that there is asymmetric information in the market for used cars. Sellers know the quality of the car that they are selling, but buyers do not. Buyers know that there is a 30% chance of getting a "lemon", a low quality used car. A high quality used car is worth $30,000, and a low quality used car is worth $15,000. Based on this probability, the most that a buyer would be willing to pay for a used car is $ 25500. (Enter your response rounded to the nearest dollar.) Which of the following would best "solve" the asymmetric information problem in this market? O A. Prohibiting the sale of low-quality cars. O B. High-quality sellers could offer warranties or product guarantees. OC. Low-quality sellers could establish industry standards. O D. It is not possible to solve the asymmetric information problem in this market.