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

See similar textbooks

Related questions

Q: 2. A client for an $85,000 fire insurance policy owns a home in an area that can sustain a total…

Q: You are the wage earner in a "typical family" with a $58,000 gross annual income. Use the easy…

A: The protection from financial loss resulting from certain circumstances is referred to as insurance.…

Q: Consider a consumer who is deciding to buy insurance for his beachfront house. Suppose the…

Q: Question 6. Suppose that Dave has 100 dollars as initial wealth. He faces two types of financial…

A: The initial wealth is 100 dollars. The risk of financial loss is 30 dollars.The probability of…

Q: 1. Suppose a person's utility is equal to U = VY and the initial income is $80,000. Medical expenses…

A: Here we are given the uncertain scenario and consumer's hence consumer's income also depends on this…

Q: Explain how risk aversion makes a market for insurance possible

A: A tendency to avoid risk is known as risk aversion. Investors that favour capital preservation above…

Q: Consider two individuals, Dave and Eva. Both Dave and Eva have initial wealth 810, 000 and face a…

A: In the study of economics, the term utility can be defined as the total satisfaction or benefit that…

Q: Q4. Ms. İpek wants to make auto insurance for her car worth 250,000 TL. Historical data shows that…

A: Given Ms. Ipek's car is worth (W) =250,000 The probability to have accident of 50,000 in a year is…

Q: Misty is single and has chosen Plan Q. Misty has not used her health insurance yet this year.…

A: Below is the given information: The portion of the bill = $5000

Q: An individual with the utility function given by u(y) = -e-0.5y, and gross disposable income y = 10…

A: The purpose of this question is to show the optimal insurance coverage for an individual with a…

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: Insurance is valuable because a-most individuals are not rational. b-individuals do not know all…

A: Insurance refers to an agreement between the insurer and insured, in which the insurer guaranteed…

Q: Problem 1. Let x be the level of precaution, w=16 is the marginal cost of precaution, p(x)=1/x is…

A: The progressive prices spent once manufacturing further units of an honest or service area unit said…

Q: (80) purchases a whole life insurance policy of 100,000 payable at the end of the year of death. You…

A: The present value of payments that an entity anticipates making to its current and former employees…

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: 4. An individual's Bernoulli utility function is u(w) = √w, and the individual has initial wealth…

A: U=W0.5Probability of a healthy person developing health issues =0.3Probability of an unhealthy…

Q: 2. Two individuals have the same income ($100,000), but different potential healthcare expenses.…

Q: Suppose that the probability of breaking a collar bone is p = .05 and the cost of breaking a collar…

A: Given;-Probability of breaking collar bone=0.05Cost of breaking collar bone=$1000 To…

Q: In the summer of 1984, Nicholai opened a small art gallery in the West Village and amassed a…

A: Insurance is the agreement which provide insurance against the risk of the unforeseen loss. The…

Q: ear in the U.S., school bus accidents claim the lives of about 10 children. Noting that school…

A: DISCLAIMER “Since you have asked multiple question, we will solve the first question for you. If you…

Q: Suppose an accident will cause $200 in damages if it occurs. Assume that potential injurers can…

A: Negligence standard (B) can be calculated by using the following formula. The value of P is denoted…

Q: For each of the following purchases, say whether you would expect the degree of imperfect…

A: A market efficiency depends upon various factors in which one of the major determinant of market…

Q: The Healthcare Managers Team Challenge Question: Considering the same graph above, and assume that…

A: The objective of this question is to calculate the expected wealth and utility of the Simpson's…

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: Exercise 5: Insurance Consider two individuals, Dave and Eva. Both Dave and Eva have initial wealth…

A: Since we only answer a maximum of 3 sub parts, only the first 3 subparts will be answered. Please…

Q: Continue from Question 16: You make $20,000 per year, and there's a $100 insurance expense to…

A: In decision theory, expected utility is a metric that expresses the average level of satisfaction or…

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: If you sell your DVD player on eBay you will be better informed about the quality of the product…

A: Asmmetric Information: Asymmetric information refers to a situation where one party involved in a…

Q: We should expect to see more people in a group to purchase insurance as the probability of illness…

A: Insurance is a financial instrument that transfers a person's or an organization's risk of loss to…

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: Anita bought a new scooter for $500. She is deciding whether she should insure her scooter against…

A: Price of the new scooter=$500 1 out of the 10 scooters is stolen So the probability of…

Q: Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for…

A: Adverse selection occurs when one party to a contract has more information than the other. Here the…

Q: Which of the following is NOT an example of on-demand insurance? Which of the following is NOT an…

A: The insurance that allows consumers for purchasing coverage anywhere when the asset requiring…

Q: Consider the following steps 1. Celia chooses how much care, z = [0, 1], to take in programming her…

A: The expected payoff, also known as the expected value or expected utility, is a measure of the…

Q: 5. Larry, who has wealth (w) of 100, faces a 25% probability that a catastrophe will eliminate all…

A: A. Larry loses all of his wealth with 25% probability and he loses nothing with 75% probability. He…

Q: A recent study demonstrated that when states pass laws mandating that health insurance cover…

A: In economics, a scenario where one party can take risks because they are aware that the terms of the…

Q: Which of the following is the best example of a moral hazard problem? Question 25 options: a)…

A: When talking about moral hazard, it is the situation that arises after a transaction is made between…

Question

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 Insurance
brolinblueA
A. Expected Total Utility
E
Utility under certainty
Expected utility under risk 0 gribso
Utility
alnubiri Gi
F
Lisrsb
Be
bo
eledong otizesnbbn ol
od esc2 beai
Wealth (in $), W
$10,000
$20,000
B. Marginal Gains and Marginal Costs
Consumer's expected marginal gain el
(willingness to pay), insurer's
marginal cost (both in $)
Consumer's expected marginal gain for heart
attack insurance
Insurer's marginal cost
Consumer's expected marginal gain
for hangnail insurance
C'
D'
B'
A'
Wealth (in $), W
$10,000
$20,000
Sara will always file a claim Sara will never file a claim
"gure 11.1 Impacts of Loading Costs on Availability of Insurance
265

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

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…
Economics 2. Suppose that a farmer usually makes profit of $120,000 per year. Let's say that there is a 2% chance that a tornado will hit the farm. This would strongly hurt farmer's profit, leading to losses of $96,000 with 2% probability. a. What is the actuarially fair insurance? b. Assume that the farmer utility is given by u = 7 0.5 where 7t represents profit. What is the farmer's expected utility with no insurance? c. How much would the farmer be willing to pay to have insurance? d. Assume that the farmer expects that the tornado's effect to your farm is lower, only leading to losses of $70,000. i. What is the actuarially fair insurance? ii. What is the farmer's expected utility with no insurance? iii. How much would the farmer be willing to pay to have insurance? iv. What is the risk premium?
V1
"Self-insurance" behaviors are actions one takes that lower the probability of a negative health outcome. (True/False) Economics
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
Q08
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.)