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Assume that, after the auto insurance mandate, 50% of purchasers of auto insurance were expected to
be high-risk and 50% were assumed to be low-risk. Would both markets for insurance clear? Why or why not?
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- Suppose that the graph below illustrates the demand for healthcare services given a coinsurance plan of 25%, what would be the expected change if the participant changed jobs and received a plan with 100% coinsurance?Anita bought a new scooter for $500. She is deciding whether she should insureher scooter against theft. She has recently read in the news that one out of 10 scooters arestolen in her town. She can buy scooter theft insurance at the price of 12 cents per $1 ofinsurance. How much insurance will Anita buy if her utility function is U(C) = 2C + 100?and you have a 10% chance of getting sick. Your income when sick is $0 and your income when healthy is $100. 1. Assume your utility over income is U=T ¥ 1. Graph your utility and income with income on the x-axis and utility on the y-axis. Show your income/utility when healthy and sick on the graph. 2. calculate your expected income. Show on graph. 3. calculate your expected utility. Show on graph. 1. Now you are offerred health insurance by Prof. Grossman's Totally Full and Fair Insurance Company. For a premium of $20, you will get a payout of $50 if you get sick. 1. Is the insurance company's name accurate (is this actuarially fair and full)? 2. What is the expected payout from this insurance? 3. What is the Income when sick and income when healthy under insurance? Show on your graph 4. What is the expected income and expected utility under this insurance? Show each on your graph 5. Propose a full and fair insurance given your 10% chance of getting sick and your healthy and sick…
- A person's utility function is U = C1/2 . C is the amount of consumption they have in a given period. Their income is $40,000/year and there is a 2% chance that they'll be involved in a catastrophic accident that will cost them $30,000 next year. a. Calculate the actuarially fair insurance premium. What would your expected utility be if you were to purchase the actuarially fair insurance premium? b. What is the most you would be willing to pay for insurance, given your utility function?Assume a consumer's demand for a medical service is as follows: Q = 100 - Pp where Pp is the out-of-pocket price she actually faces. She is considering four different insurance options: uninsurance, full insurance, a 50% coinsurance plan, and a copayment plan with a $25 copay. Assume this service has a list price of PL = $70. Calculate Q under each insurance plan. Please fill in the final answer without showing the middle steps (a number only, without any extra space, symbol, word, etc.) If the customer is uninsured, Q= • If the customer is fully insured, Q= • If the customer has a 50% coinsurance plan, Q= • If the customer has the copayment plan, Q=Economists define the 'certainty equivalent' of a risky stream of income as the amount of guaranteed money an individual would accept instead of taking a risk. The certainty equivalent varies between individuals based on their risk preference. Consider a risky bet that involves a 50-50 chance of losing $5,000 or winning $5,000 for an individual with starting income of $50,000. Calculate the certainty equivalent income that provides the same utility as this bet for individuals with these different utility functions: a. U(1) Vi b. U(1) = In(1) where In represents the natural logarithm function C. U(I) = -1/1 d. What can you conclude about the relative level of risk aversion for these three individuals? e What would be the certainty equivalent income for this bet for a risk neutral individual? f. What is the likelihood that a profit maximizing risk neutral insurance company would be willing and able to purchase these bets from the individuals in a, b and c? Explain.
- Continue from Question 16: You make $20,000 per year, and there's a $100 insurance expense to mitigate a 1% risk of a $10,000 accident. Utility without insurance and no accident = 2000 Utility without insurance with accident = 1500 What is the expected utility "without" insurance? Utility "2000" "1999" "1500" 1999 2000 1995 1500 $10,000 $19,900 $20,000Suppose a company offers a standard insurance contract with a premium (r) of $2,000 and a payout (q) of $10,000. Suppose that Adelia earns a healthy state income of $70,000, a sick state income of $50,000, and has a 20% chance of becoming ill. For Adelia, this insurance contract would be: A. actuarially fair and partial B. actuarially fair and full C. actuarially unfair and full D. actuarially unfair and partialSuppose Diane's utility function is U=- Vincome . Diane earns an income of $102,400, but there is a 15% chance that she will get sick and have a $62,400 medical bill. The health insurance company, DenialCare, will offer her a health insurance policy to pay for her medical bills. What would an actuarially fair premium be and what is the maximum she would be willing to pay for the insurance?
- Economists define the ‘certainty equivalent’ of a risky stream of income as the amount of guaranteed money an individual would accept instead of taking a risk. The certainty equivalent varies between individuals based on their risk preference. Consider a risky bet that involves a 25% chance of losing $5,000 or a 75% winning $5,000 for an individual with starting income of $50,000. Calculate the certainty equivalent income that provides the same utility as this bet for individuals with these different utility functions: 1. U(I) = I 2. U(I) = I–√ 3. U(I) = ln(I)where ln represents the natural logarithm function Type the numerical answers in the corresponding numbered boxes below. Round your answers to two decimal places. Do not use $ or , in your answers. (for example, enter 45223.45 or 46500.00) What can you conclude about the relative level of risk aversion for these three individuals? Explain.Is the decision to buy pet insurance strictly an economic decision? Explain.Explain why the variance of an investment is a useful measure of the risk associated with it