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?
Now consider a different insurance company that does not have the inclination to tailor contracts specifically to individuals. Instead, it will offer a “standard contract” with the premium r =$100 and payout q=$500 to anyone who will purchase it. a. 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? b. Tim has IH = $500 and IS = $0, but a probability of illness p = 0.2, higher than Peter’s. Is the standard contract fair and/or full for Tim? How does purchasing the standard contract affect Tim’s expected income?c. Jay has IH =$1, 000 and IS =$0, with probability of illness p=0.2. Is the standard contract fair and/or full for Jay?d. Suppose there is a customer named Ronald for whom the standard contract is partial and actuarially unfair in the insurance company’s favor. Give a set of possible values for Ronald’s IH, IS,…
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
Breifly discuss the factors that determine demand for an insurance policy and how they different then normal determinant demand of a commodity?
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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1. Consider a model of unilateral care. The injurer can invest $50 in care and reduce the probability of an accident to zero or take no care and face a 10% chance that an accident causing $750 in damages occurs. a. Is it efficient for the injurer to take care in this case? b. Suppose the court could not observe whether or not the injurer took care. Would it be appropriate to for the court to invoke the res ipsa loquitur doctrine in this case?
What distribution is appropriate for simulating the event of flipping a coin? O triangular O discrete uniform binomial O continuous uniform