Certainty Utility D 200 198 194 D' Total utility 170 Expected Utility of wealth A 140 10,000 15,000 19,000 20,000 Wealth FIGURE 8-1 Total Utility of Wealth and the Impact of Insurance a. Please explain the difference between the certainty utility line and the expected utility b. Calculate your E(U), given an 80% change of being healthy and 20% of being sick, knowi that your income falls to $10,000 and your utility is 140 if you get sick. c. Calculate your E(W), given an 80% change of being healthy and 20% of being sick. d. Given that your Certainty Utility Function is U = 200Y-0.00154 and Y is your income, what : your Certainty Utility with insurance (if you are risk averse) e. What insurance premium will you pay to guarantee a utility of 197? Please provide a calculation.

Certainty Utility D 200 198 194 D' Total utility 170 Expected Utility of wealth A 140 10,000 15,000 19,000 20,000 Wealth FIGURE 8-1 Total Utility of Wealth and the Impact of Insurance a. Please explain the difference between the certainty utility line and the expected utility b. Calculate your E(U), given an 80% change of being healthy and 20% of being sick, knowi that your income falls to $10,000 and your utility is 140 if you get sick. c. Calculate your E(W), given an 80% change of being healthy and 20% of being sick. d. Given that your Certainty Utility Function is U = 200Y-0.00154 and Y is your income, what : your Certainty Utility with insurance (if you are risk averse) e. What insurance premium will you pay to guarantee a utility of 197? Please provide a calculation.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.5P

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Similar questions

What is an actuarially fair insurance policy?
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