Develop a graphical representation of the choice to buy insurance. Define and highlight on the graph diminishing utility of wealth, expected utility curve, pure premium, amount you'd pay above it. What are you comparing in order to decide whether to buy insurance?

A. From the graph below explain how an insurance plan which provides the buyer a $15,000 wealth level, regardless of any uncertain event, is a good deal for the buyer? In other words, what does the distance between points D’ and C’ represent? Note we are referring to D prime, not D.   B. Considering the graph below, can you explain the difference between expected utility and certainty utility?

From utility theory, the demand for insurance depends on the level of risk aversion (i.e. how much you hate uncertainty), the cost of insurance (i.e. if it is within your willingness to pay), as well as wealth. Can you think of anything else that affects demand for insurance?

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?

Explain the purpose of insurance. If a mother purchases health insurance for her and her four (4) children, who is the policyholder, and who is (are) the beneficiaries?

When you choose to buy insurance, are you speculating? When you choose not to buy insurance, are you also speculating? Explain.  

2. Consider an individual with a current wealth of $100,000 who faces the prospect of a 25% chance of losing $20,000 through theft of her car during the next year. If the person’s utility function is U(X) = ln(X), where X is wealth: a. calculate expected utility without insurance, b. calculate the actuarially fair premium for full insurance, c. calculate expected utility with full insurance at the actuarially fair premium d. calculate the maximum amount the individual would pay for full insurance.

Of the methods for covering risk, which is essentially a dollar for dollar shift of consumption between periods? A. Savings B. Private Market Insurance C. Social Insurance D. Charity

Both types of insurance customers receive the same insurance policy. Choice 1 of 2:True Choice 2 of 2:False

Describe this insurance scorecard claims.