The lecture mentions that diminishing marginal utility applies to the consumption of money as well as the consumption of certain food. Can you give another example where diminishing marginal utility applies? Can you think of any example where diminishing marginal utility does not apply?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?One of the predictions of prospect theory is that we tend to be overly concerned with relatively small risk. Can you think of any example (besides those given in the lecture) that either speaks to this or is an exception?

“Since you have asked multiple questions, we will solve the first question for you. If you want any…

The lecture mentions that diminishing marginal utility applies to the consumption of money as well as the consumption of certain food. Can you give another example where diminishing marginal utility applies? Can you think of any example where diminishing marginal utility does not apply?

The lecture mentions that diminishing marginal utility applies to the consumption of money as well as the consumption of certain food. Can you give another example where diminishing marginal utility applies? Can you think of any example where diminishing marginal utility does not apply?

EBK HEALTH ECONOMICS AND POLICY

7th Edition

ISBN:9781337668279

Author:Henderson

Publisher:Henderson

Chapter7: The Market For Health Insurance

Section: Chapter Questions

Problem 11QAP

See similar textbooks

Related questions

Q: Is the decision to buy pet insurance strictly an economic decision? Explain.

A: An economic decision is a decision when people have to choose between options due to scarcity of…

Q: Why do economists say that people tend to be risk-averse?

A: Different individuals have different preferences towards risk or uncertainty. Most individuals are…

Q: If people get higher pay from their insurance than their premiums, will this increase or decrease…

A: Moral hazard refers to situation where a party engages itself in more risky activities after the…

Q: George Akerloff focused the market for used cars and discussed an issue later generally called the…

A: In the year of 1970, a behavioral economist, George Akerloff published a paper "The Market for…

Q: Explain how utility could be used in a decision where performance is not measured by monetary value.

A: Utility is resisted as a term used to portray the fulfillment an individual gets from the…

Q: n economics professor finds that he strictly prefers a $10 bottle of wine over an $8 bottle, and a…

A: Behavioral economics is a branch of economics that studies why people make irrational decisions and…

Q: Which of the following would best describe the insurance in risk, to an insurer resulting from a…

A: Insurance in risk refers to the insurance of risk against occurrence of something bad, harmful or…

Q: Insurance is valuable because a-most individuals are not rational. b-individuals do not know all…

A: Insurance refers to an agreement between the insurer and insured, in which the insurer guaranteed…

Q: Demand for Insurance Find the Expected Utility for the Beneficiary (Baseball Pitcher) Determine the…

A: Given, Utility function The probability that pitcher would become injured = 0.1 Earning if he…

Q: The difference between the actuarily fair price for insurance and the price a risk-averse individual…

A: To Find: Difference between the actual fair price for insurance and, the price a risk- averse…

Q: Johnny Football has a utility function of the form ? = √?. Johnny is beginning his senior year of…

A: a. Expected utility can be calculated as follows. Expected utility is $910.

Q: Explain two or more of the behavioral economics concepts listed below and give an example of each…

A: Confirmation bias: It refers to the inclination of the person towards the facts or information that…

Q: In the summer of 1984, Nicholai opened a small art gallery in the West Village and amassed a…

A: Insurance is the agreement which provide insurance against the risk of the unforeseen loss. The…

Q: Q1. Insurance works by spreading risk over - a. the uninsured b. a few people c. several…

A: Note:- Since we can only answer up to three subparts, we'll answer first three. Please repost the…

Q: For each of the following purchases, say whether you would expect the degree of imperfect…

A: A market efficiency depends upon various factors in which one of the major determinant of market…

Q: A consumer has utility u(1) = Vī and income $1,000. When sick, the consumer must go to the doctor,…

A: U = I0.5 Income = $1,000 Visiting the doctor without insurance = $400 Probability of getting sick…

Q: Life insurance companies require applicants to submit to a physical examination as proof of…

A: Insurance:It is a type of agreement under which insurance company bears the loss against the premium…

Q: In the basic model of insurance, income is the only input into a person’s utility. This is obviously…

A: When a person falls ill, he has to pay lot of expenditure on hospital doctors and medicines. but…

Q: Suppose an insurance company wants to charge a very healthy individual a premium of $1,200 a year…

A: The number of reports should the company request (X) can be calculated by suing the following…

Q: It is often costly to obtain the information necessary to make good decisions. Yet, your own…

A: Rational decision makers need to make an informed decision as they are dependent on the resources…

Q: In a standard economic analysis, setting a higher copayment rate per day of hospital care 1) Has…

A: ANS A copayment for an insurance plan is a flat rate that the insured need to pay for obtaining a…

Q: If people get higher pay from insurance than their pre premiums. Will this increase or decrease the…

A: 1) If people get higher pay from insurance than their pre premiums that means the insurance company…

Q: In economic terms, moral hazard is the negative relationship between the out-of-pocket price of the…

A: Answer: Moral hazard: moral hazard occurs when one party changes his/her behavior after buying…

Q: If people get higher pay from insurance than their premiums, will this increase or decrease the…

A: Answer- If people get higher pay from the insurance than their premium, it will increase the the…

Q: Insurance Diagram Total Utility E U(W-L) B W-L P(W-L)+(1-p)W Expected If an insurance company…

A: * ANSWER :- By using given data the matching are given below

Q: Would this be d? Dan, age 19, may have trouble buying auto insurance at a low price because…

A: Asymmetric information occurs when there is unequal information between two parties. In this…

Q: What are moral hazard and adverse selection? How are they similar, how are they different? What…

A: Asymmetric information refers to the situation when there is incomplete information or knowledge in…

Q: Question 3 3a) If Jon purchases insurance for the pure premium, what is his utility? Jon now pays…

A: Yes, he is better of with the policy than without. The essence of taking an insurance policy is to…

Q: The text points out that asymmetric information can have deleterious effects on market outcomes. a.…

A: (a) Asymmetric information leads to moral hazard and adverse selection. The term asymmetric…

Q: Maria owns a saltwater boat worth $1,150,000 and Maria has a utility function with u(x) = x0.5. She…

A: Given values and probabilities we have Value = 1150000 with probability 0.92 = 0 with…

Q: Who is most risk-averse? a-an individual with slightly diminishing marginal utility. b-all…

A: By risk aversion we mean conduct that represents an agent's reluctance to take certain risks even…

Q: Moral hazard is consistent with the idea that when people have health insurance that protects…

A: Moral hazard takes place in an economy when the people seek more risk because a part of the cost…

Q: Suppose your preferences can characterized by the simple utility function U = √C, where C is…

A: Given Utility wealth function: U=C where C is consumption. Chance of getting injured (p)= 0.1…

Q: Why might it be difficult for a buyer and seller to agree on a price when imperfect information…

A: Imperfect information is defined as the market scenario in which buyers and sellers are not at the…

Q: If people get higher pay from insurance than their premiums. Will this increase or decrease the…

A: Moral Hazard:Moral hazard is a situation, which arises when a person an insured person takes greater…

Q: Breifly discuss the factors that determine demand for an insurance policy and how they different…

A: For the salaried people, it was observed that income level, age, sex, race-religion, schooling…

Q: For any given distribution of outcomes and probabilities, describe how preferences over risk affect…

A: The individual's preferences are "well-behaved" enough to be spoken to over probability…

Q: George Akerloff focused the market for used cars and discussed an issue later generally called the…

A: Lemons problem: It refers to the problem which is connected with the defective cars. This problem…

Q: What is loss aversion? Group of answer choices The tendency to focus more on the loss than the…

A: Loss aversion is an intellectual bias that portrays why, for people, the aggravation of losing is…

Question

The lecture mentions that diminishing marginal utility applies to the consumption of money as well as the consumption of certain food. Can you give another example where diminishing marginal utility applies? Can you think of any example where diminishing marginal utility does not apply?
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?
One of the predictions of prospect theory is that we tend to be overly concerned with relatively small risk. Can you think of any example (besides those given in the lecture) that either speaks to this or is an exception?

Video Video

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

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?
In 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).
Explain how risk aversion makes a market for insurance possible
If people get higher pay from insurance than their premiums, will this increase or decrease the death rate of average persons? Is this an example of moral hazard or adverse selection? How will an insurance company deal with these problems?
. Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with von Neumann-Morgenstern utility index u(x) √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.
Life insurance companies require applicants to submit to a physical examination as proof of insurability prior to issuing standard life insurance policies. In contrast, credit card companies offer their customers a type of insurance called “credit life insurance” that pays off the credit card balance if the cardholder dies. Would you expect insurance premiums to be higher (per dollar of death benefits) on standard life or credit life policies? 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?
Draw a utility function over income u( I) that describes a man who is a risk lover when his income is low but risk averse when his income is high. Can you explain why such a utility function might reasonably describe a person’s preferences?
Using a basic illustration, explain your understanding of utility theory given uncertainty
Insurance is valuable because a-most individuals are not rational. b-individuals do not know all possible states of the world. c-individuals experience diminishing marginal utility. d-individuals have imperfect information and about the probability of adverse events.
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
If people get higher pay from insurance than their pre premiums. Will this increase or decrease the death rate of average persons? Is this an example of moral hazard or adverse selection? How will an insurance company deal with these problems.