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

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter6: Consumer Choices

Section: Chapter Questions

Problem 14CTQ: The rules of politics are not always the same as the rules of economics. In discussions of setting...

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Suppose there is a 50–50 chance that a risk-averse individual with a current wealth of $20,000 will contract a debilitating disease and suffer a loss of $10,000. a. Calculate the cost of actuarially fair insurance in this situation and use a utility-of-wealth graph (such as shown in Figure 7.1) to show that the individual will prefer fair insurance against this loss to accepting the gamble uninsured. b. Suppose two types of insurance policies were available: (1) a fair policy covering the complete loss; and (2) a fair policy covering only half of any loss incurred. Calculate the cost of the second type of policy and show that the individual will generally regard it as inferior to the first. Reference: Figure 7.1
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