Use the figure below to answer the following question. Let lμ represent Income when healthy, let Is represent income when ill. Let E[I] represent expected income for a given probability (p) of falling ill. Utility A 0000 B ELB Point B represents C In U(I) nome actuarially unfair & full contract uninsurance actuarially fair & full contract actuarially fair & partial contract

Use the figure below to answer the following question. Let lμ represent Income when healthy, let Is represent income when ill. Let E[I] represent expected income for a given probability (p) of falling ill. Utility A 0000 B ELB Point B represents C In U(I) nome actuarially unfair & full contract uninsurance actuarially fair & full contract actuarially fair & partial contract

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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ASAP Suppose that Elizabeth has income of £100 but there is a chance of 1/3 that she may lose 80 of that in a car accident. What are the states of nature? Represent the graph of the contingent commodities and show her endowment point. Suppose that she is risk averse and that she can buy insurance at a premium of 0.5 per unit of cover. Show the fair odds line and her indifference curves on the graph. Can you say anything about the amount of cover she will buy?
Use the figure below to answer the following question. Let In represent Income when health, let Is represent income when ill. Let E[I] represent expected income. Point D represents Utility Is у в an actuarially fair and full contract an actuarially fair and partial contract X E[1], the utility from Expected income with no insurance an actuarially unfair and full contract an actuarially unfair and partial contract с IH U(I) Prome
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Question 4 Suppose that there is a 10% chance Ja'Marr is sick and earns $10,000, and a 90% chance he is healthy and will earn $70,000. Suppose further that his utility function is the following (utility = square root of income) U (I) = VIncome Ja'Marr's expected income is O $60,000 O $70,000 $40,000 O $64,000
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Moral Hasard and Insurance The utility is U = W1/2 − 350S + 95S1/2 ; where W is wealth and S is care taken to avoid accidents. Probability of accident is 0.70 − S1/2 Wealth is ✩850,000 without accident and ✩300,000 with accident. Calculate S, EU and CE without insurance. Calculate S and EU with full insurance
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