Question 1: Using Figure 11.1, illustrate the probability that someone will obtain insurance for treatment for: (a) a hangnail; (b) a broken arm; (c) a bad hair day; (d) viral meningitis Figure 11.1 Impacts of Loading Costs on Availability of InsurancebrolinblueAA. Expected Total UtilityEUtility under certaintyExpected utility under risk 0 gribsoUtilityalnubiri GiFLisrsbBeboeledong otizesnbbn olod esc2 beaiWealth (in $), W$10,000$20,000B. Marginal Gains and Marginal CostsConsumer's expected marginal gain el(willingness to pay), insurer'smarginal cost (both in $)Consumer's expected marginal gain for heartattack insuranceInsurer's marginal costConsumer's expected marginal gainfor hangnail insuranceC'D'B'A'Wealth (in $), W$10,000$20,000Sara will always file a claim Sara will never file a claim"gure 11.1 Impacts of Loading Costs on Availability of Insurance265

The method of transferring a part or full amount of the risk associated with an event in exchange of…

Answered: Question 1: Using Figure 11.1,…

Question 1: Using Figure 11.1, illustrate the probability that someone will obtain insurance for treatment for: (a) a hangnail; (b) a broken arm; (c) a bad hair day; (d) viral meningitis

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Which of the following is NOT an example of on-demand insurance? Which of the following is NOT an example of on-demand insurance? You insure your drones whenever they are taken out of your home environment You purchase an instant travel insurance for the duration of an upcoming trip Your insurance premium fluctuates depending on your driving behavior Your insurance coverage is activated whenever you take on a passenger in your car Item at position 7 7
part c, d, and e please
before receiving a policy from the insurer, a producer may give an insured a written document as proof of insurance. The document is referred to as a (an) 1. statement of insurance 2. endorsement of insurance 3. binder of insurance 4. manuscript of insurance
Because of the moral hazard problem, a-the government has increased incentive to regulate insurance markets. b-low-risk individuals do not choose insurance. c-the costs of providing insurance decreases. d-full insurance may no longer be efficient.
QUESTION 48 A recent study demonstrated that when states pass laws mandating that health insurance cover treatment for alcoholism, alcoholism rates in the state as well as alcohol related medical issues and drunk driving increase significantly. This is an example of: A. Adverse selection B. Risk spreading C. Moral hazard D. Opportunism
25. Which of the following is the best example of a moral hazard problem? Question 25 options: a) A borrower uses the proceeds of a business loan to gamble at a Las Vegas casino. b) A borrower decides to borrow at a fixed rather than a variable interest rate. c) A bank has difficulty in distinguishing between good and bad credit risks. d) A borrower makes all of her payments despite a downturn in her business.
Alana wishes to obtain auto insurance. She wants 100/300/100 liability coverage, $250 deductible collision and full coverage comprehensive. She lives in territory 2 and has been assigned to driver class 2 with a rating factor of 1.25. Based on Table 19-6 and Table 19-7, what would be her total premium, if her three-year-old car were in model class L? (Round your answer to the nearest cent.) a. $355.00 b. $365.00 c. $456.25 d. $465.38
Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for poor quality used cars is $10,000. Assume a potential used car buyer has imperfect information as to the condition of any given used car. Assume this potential buyer believes the probability a given used car is good quality is .60 and the probability a given used car is low quality is .40. Assume the seller has perfect information on all cars in inventory. How does the informational imbalance result in market failure? a. Only good quality cars are sold, hence the market under-provides used cars. b. Both poor and good quality cars are sold, hence the market over-provides used cars. c. Only poor quality cars are sold, hence the market under-provides used cars. d. Both poor and good quality cars are sold, hence the market efficiently provides used cars.
Exercise 4: Insurance Fiona has von Neumann-Morgenstern utility function u(x) = VT and initial wealth 640, 000. She faces a 25% chance of losing L = 280, 000. 1. Is Fiona risk averse? 2. What is Fiona's utility if no loss occurs, what is her utility if the loss occurs? What is Fiona's expected utility? 3. What is the cost of fair insurance against the possible loss? Suppose Fiona is able to choose insurance with any coverage z E [0, 1] (i.e. 0 0 C(z) = if z = 0 4. Suppose co = 0 and c1 = 70,000. Is insurance at coverage level z > 0 fair insurance? What coverage level z* would Fiona choose? Explain. 5. Suppose co = 100 and c1 = 70,000. Is insurance at coverage level z > 0 fair insurance? What coverage level z** would Fiona choose? Explain. (Note that co = 100 is an "avoidable fixed cost" which is only paid if she chooses strictly positive insurance coverage. However, the "marginal cost" of additional insurance, c1 = 70,000, is the same as in the previous part.) 6. Suppose co = 100 and…
The key concept that explains why individuals choose to obtain insurance and why they may be less likely to gamble with their wealth is: a. increasing marginal utility in wealth b. constant marginal utility in wealth c. decreasing marginal utility in wealth
___ occurs when insurance companies structure plans that provide an incentive for healthier consumers to enroll while discouraging enrollment of higher-risk individuals a. Guaranteed renewability b. Cherry-picking c. Moral Hazard d. Asymmetric Information e. Adverse Selection