Suppose your preferences can characterized by the simple utility function U = √C, where C is consumption. You enjoy rock climbing, where you have a 10% chance of get- ting injured and losing $50,000. Your income (and therefore consumption) in the uninjured state is $90,000. What is the most you are willing to pay for an insurance policy? What is the fee for a fair insurance?
Q: Consider the model of competitive insurance discussed in lectures (Topic 6.7). Peter is a risk…
A: In a competitive insurance market the fair premium price is equal to the expected value of the loss…
Q: 2. Suppose the consumption function of country A is C-1000+ 0.8Y, ( is the disposable income).…
A: Equilibrium condition: Y= C+I+G
Q: If the price of beef went up due to an increase in the incomes of most citizens of a particular…
A: Price elasticity of the supply refers to the percentage change in quantity supplied with respect to…
Q: Use the following table to answer the question about taxes, where P Price buyers pay, P, Price…
A: The monies collected through income and profit taxes, Social Security taxes or "contributions,"…
Q: Q5A and B are sharing a room with a TV and a DVD player. DVD's can be rented for the weekend for a…
A: DVD's can be rented for the weekend for a cost of $5. They would each get $4 worth of enjoyment from…
Q: Brett started a new construction business in April 2020. In connection with the new business, he…
A: Brett's construction company launched in April 2020.In June 2020, he bought a new backhoe for…
Q: se you make an annual bution of P11,036 each year t e fund for a niece. He is 5 yea nd you will…
A: Introduction,
Q: How is the steady-state determined after considering the role of technological progress?
A: The Steady-state in the Solow model occurs when the key variables like level of capital and output…
Q: Wages relative to the cost of capital 1.8 1.4 i England France 1580 1600 1620 1640 1660 1680 1700…
A: Isocost line refers to the line that shows the constraint for the combinations of the factors of…
Q: Which of the following will NOT cause inflation to increase in home country? O An increase in the…
A: inflation is the pace of increase in costs over a given timeframe. inflation is normally a wide…
Q: 1. 2. Explain why macroeconomic analysis is particularly concerned with issues of economic growth,…
A: Economic growth, the method by which a nation's wealth will increase over time. though the term is…
Q: Which of the following are potential sources of market failure? OA. price floors and price ceilings…
A: Gradually we can say that the market failure is usually described as the situation in which the…
Q: The Bluebird Factory reported $1,000,000 in total revenues and $60,000 total variable costs during…
A: Given: The total revenues are = $1,000,000 The total variable costs are = $60,000 To Find: The…
Q: Suppose, in the New Keynesian open economy model, that there is a negative shock in future total…
A: In an open economy, there are 4 sectors, that is the household, the producers, the government and…
Q: You live in Canada, and purchased a car manufactured in Japan this year from a dealer in Canada. The…
A: Gross domestic product is the total market value of goods and services produced domestically during…
Q: If the effective annual interest rate is 10.51% and the nominal annual rate is 10.25%, compounding…
A: An effective annual interest rate is the genuine profit from an investment account or any premium…
Q: A country reported nominal GDP of $200 billion in 2006 and $180 billion in 2005; it reported a GDP…
A: the GDP deflator measures the changes in the GDP that results from changes in the price level.…
Q: 1. Doug consumes two goods, electricity, e, and a composite commodity z. Doug has the following…
A: Utility function : U = z2 e Optimal point of consumption is achieved where the marginal rate of…
Q: alculator Scratch Pad Pillar Co makes decorative candles which are made from a special organic blend…
A: Given information Table Demand function shows the relation between demand and price of the product.…
Q: P = 40, +10 A tax of 8JD is imposed on every unit sold Answer th question in accordance with the…
A: Given, P = -4Qd + 50 P = 4Qs + 50 Tax on every unit sold = 8JD At equilibrium stage, Supply = Denand…
Q: Which of he following stalements about policy delivery is CORRECT? A.The producer should deliver…
A: The distribution of the insurance contract to the applicant is referred to as policy delivery.
Q: Madeleine is a high school graduate deciding whether to go to university. She (like everyone else)…
A: Madeline's net (recent value of income) = income in period 1 + income in period 2(1+r)Without…
Q: Price| J M S K D₂ D₁ Quantity Refer to Figure 4-10. The shift from S2 to S1 in the market for…
A: Here, the given graph shows the shift in demand curve and supply curve jn the Chocolate cake market.
Q: What is the main advantage of a foreign trade zone?
A: Since you have asked multiple question, we will solve the first question for you. If you want any…
Q: Offer, acceptance, and consideration are necessary elements of A.a warranty B.a…
A:
Q: Money has four functions: a medium of exchange or means of payment, a store of value, a unit of…
A: In the given question, the function of money are given and their implication is suggested.
Q: Suppose there are only two individuals A and B in the economy with utility function of first…
A: Utility Function Utility function refers to the function of consumption of two goods by the…
Q: 2. What is the significance role of financial institutions, is and how it operates? of understanding…
A: Any central bank is the financial institution that is given a privileged control over the production…
Q: When a firm produces 600 widgets with total cost of $1,300 and fixed cost of $800, what is the…
A: The variable cost per unit is the average variable cost.To calculate the average variable cost,…
Q: wers, you should, where appropriate, be referring to concepts such as the ma anical substitution,…
A: Indifference curve shows the different combinations of two goods that provide the same level of…
Q: Consider an industry composed of only two firms, each producing an identical product. The two firms…
A: We have stackleberg competition between two firms and they both have identical costs.
Q: 4. Equilibrium a) 45 E) Otherwise price after tax is imposed: b) 55 c) 70 Values of dimensions et…
A: As we know tax will increase the cost of producer and producer will be discouraged to produce more…
Q: Vegemite has been recently introduced to the Chinese market. It sells for the equivalent of $2 per…
A: Given Price of vegemite (P)=$2 per jar Variable cost of vegemite VC = $0.50 per jar Fixed cost (FC)…
Q: wants to know what the difference is between one-to-many, many-to-many and one-to-one relationships.…
A: Any financial transaction, corporate partnership, or client representation is referred to as an…
Q: Why can't the answer be the Ricardian economic theory? The theories are very similar but what…
A: In Ricardo's theory, which depended on the labor hypothesis of significant worth (basically, making…
Q: 1. Evergreen Fertilizer Company produces fertilizer. The company's fixed monthly cost is $25,000,…
A: Fixed cost=$25,000 Variable cost= $0.15 Selling price= $0.40
Q: the Trade Minister argues that the country should not adopt ISI. They asks you to help her explain…
A: The exchanges of goods and services among nations through their national boundaries are considered…
Q: Minister for Labour, John Ring, argues that closing the country's borders to international trade…
A: A closed economy is one that has no exchanging movement with outside economies. The shut economy is…
Q: Julia Robertson is a senior at Tech, and she's investigating different ways to finance her final…
A: At home football games, Julia Robertson is thinking about renting a food stand outside the Tech…
Q: Question 3 For each one of the following production function determine whether it has constant,…
A: We have given production function where each one is a function of both L and K.
Q: Economics A company in a free competition market has marginal costs given by MC (Q) = 50 + 3⋅Q where…
A: free market is the market for where firm sale homogenous goods at the given price level . in this…
Q: The five most important variables that determine the level of consumption are O wealth, savings…
A: A consumption function defines the relationship between the level of consumption and various factors…
Q: Use the following table to answer the question about taxes, where Po-Price buyers pay, P, Price…
A: When government imposes a tax on a good, it will collect some tax revenue from the exchange of that…
Q: Consider a monopolist that has a constant marginal cost of 10. The demand for its product is given…
A: Monopoly is the market where single seller sell the product and there is restriction in entry in the…
Q: Find the equivalent interest rates to the given nominal interest rates. a. Nominal interest rate…
A: The genuine yearly compounded interest rate that is comparable to an interest rate compounded at a…
Q: list and describe various economic and societal factors that affect demand and pricing for health…
A: People must look for a service they can afford and are prepared to pay for in order to satisfy…
Q: The economy of Ghana is made up of three sectors namely: Agriculture, Industry and Services. These…
A: As of late notwithstanding, the area has been a minimal supporter of the public results. Patterns in…
Q: n insured is employed by a manufacturing company that provides group health coverage for its…
A: Insurance policy: An insurance strategy is a legitimate policy between the insurance agency (the…
Q: 6. Answer all of the following: (a) As a first-year student, you need to borrow £40,000 in order to…
A: Borrowings and loans Borrowing refers to the take cash from banks and financial institutions for a…
Q: Under the disaster risk decision tree model, which of the following conditions would create the…
A: Introduction disaster risk reflects the concept of hazardous events and disasters as the outcome of…
Suppose your preferences can characterized by the simple utility function U = √C, where C is consumption. You enjoy rock climbing, where you have a 10% chance of get- ting injured and losing $50,000. Your income (and therefore consumption) in the uninjured state is $90,000. What is the most you are willing to pay for an insurance policy?
What is the fee for a fair insurance?
Step by step
Solved in 4 steps
- . Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with von Neumann-Morgenstern utility index . There is a 1 % probability that there is flooding damage at her house. The repair of the damage would cost £80,000 which would reduce the income to £10,000. a) Would Priyanka be willing to spend £500 to purchase an insurance policy that would fully insure her against this loss? Explain.Consider two individuals whose utility function over wealth I is ?(?) = √?. Both people face a 10 percent chance of getting sick, and foreach the total cost of illness equals $50,000. Suppose person A has a total net worth of $100,000, and person B has a total net worth of $1,000,000. Both people have the option to buy an actuarially fair insurance contract that would fully insure them against the cost of the illness. a. Using expected utility calculations, show that person A would certainly buy full, actuarially fair insurance. b. Suppose an insurance company wants to maximize profits and wants to charge each customer the maximum price they are willing to pay. How much should the insurance company charge each client so that both buy the contract? c. What is surprising about your result in part b? What does this tell you about how insurance companies may be pricing health insurance contracts in the real world?Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with von Neumann-Morgenstern utility index u(x) = square root x . There is a 1 % probability that there is flooding damage at her house. The repair of the damage would cost £80,000 which would reduce the income to £10,000. a) Would Priyanka be willing to spend £500 to purchase an insurance policy that would fully insure her against this loss? Explain
- . Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with von Neumann-Morgenstern utility index u(x) = square root x. There is a 1 % probability that there is flooding damage at her house. The repair of the damage would cost £80,000 which would reduce the income to £10,000. a) Would Priyanka be willing to spend £500 to purchase an insurance policy that would fully insure her against this loss? Explain. b) What would be the highest price (premium) that she would be willing to pay for an insurance policy that fully insures her against the flooding damage?Consider two treatments. Treatment 1 saves one year of life at a cost of $10,000. Treatment 2 saves ten years of life at a cost of $1,000,000. Which treatment is more cost-effective? Why? Consider two treatments. Treatment 1 saves six years of quality adjusted life at a cost of $90,000. Treatment 2 saves three years of quality adjusted life at a cost of $60,000. Which treatment is preferred from a cost utility analysis perspective? Suppose Jay has been experiencing back pain and that there are two options for back pain: Treatment Regimen Total Cost Pain Reduction Do nothing $0 0 units Cortisone injections $600 30 units Calculate the ICER between cortisone injections and doing nothing. Jay says he is willing to pay $10 for a per unit of pain reduction. Should he choose cortisone injections? Another treatment is discovered. It costs $700 and reduces pain by 25 units. Should he choose the new treatment?Scenario 2 Tess and Lex earn $40,000 per year and all earnings are spent on consumption (c). Tess and Lex both have the utility function ( sqrt c) . Both could experience an adverse event that results in earnings of $0 per year. Tess has a 1% chance of experiencing an adverse event and Lex has a 12% chance of experiencing an adverse event. Tess and Lex are both aware of their risk of an adverse event. Refer to Scenario 2 Calculate Lex’s and Tess' expected utilities without insurance. (each one separated) Round to two decimal places for both
- 1- A consumer who starts (i.e. has an endowment) at point B, and has preferences shown by IC1, will want to borrow. Select one: True False 2-Assuming a mix of present and future consumption is preferred, ANY consumer who starts (i.e. has an endowment) at point A will gain utility from a rise in interest rates. Select one: True False 3-A consumer who starts at point B will want to borrow, but as little as possible in order to minimise the cost of interest. Select one: True False 4-If a consumer starts at point A, and then receives extra income in the present, this would appear as an outward shift of the budget constraint. Select one: True FalseLoss aversion refers to the idea that people ________. generally tend to avoid risky activities are more prone to making losses than gains in day-to-day transactions psychologically weight a loss more heavily than they psychologically weight a gain are unwilling to undertake expenditures that reduce the probability of future lossesIn the field of financial management, it has been observed that there is a trade-off between the rate of return that one earns on investments and the amount of risk that one must bear to earn that return. a) Draw a set of indifference curves between risk and return for a person that is risk-averse (a person that does not like risk).
- Draw a utility function (with income on the horizontal axis) for an individual who is risk-loving at low levels of income, risk-neutral at moderate levels of income, and risk-averse at high levels of income (with each of these three regions clearly labeled). How would someone who looked at this graph (and had no other information about the individual) be able to figure out the individual’s attitude toward risk (averse/loving/neutral) in each region?Suppose that left-handed people are more prone to injury than right-handed people. Lefties have an 80 percent chance of suffering an injury leading to a $1,000 loss (in terms of medical expenses and the monetary equivalent of pain and suffering) but righties have only a 20 percent chance of suffering such an injury. The population contains equal numbers of lefties and righties. Individuals all have logarithmic utility-of-wealth functions and initial wealth of $10,000. Assume perfectly competitive insurance market and find (i) the first best and (ii) the second-best contracts.Suppose 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 partial