Uz Uz U4 Us 20 28 42 60 Income Currently the consumer has $60. If there is an accident their income will be $20. The probability of an accident is 0.45. This means the consumer has an expected income of $ Suppose an insurance firm offered the consumer a fair insurance contract, that pays them $40 if an accident occurred. This contract would cost the consumer $ and their utility would be instead of The most an insurance firm could charge for this insurance contract is $

Uz Uz U4 Us 20 28 42 60 Income Currently the consumer has $60. If there is an accident their income will be $20. The probability of an accident is 0.45. This means the consumer has an expected income of $ Suppose an insurance firm offered the consumer a fair insurance contract, that pays them $40 if an accident occurred. This contract would cost the consumer $ and their utility would be instead of The most an insurance firm could charge for this insurance contract is $

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.9P

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An individual has 40,000 in income per year. The person will get sick with probability 0.1. If he does get sick, the medical bills will total 30,000. The following tables shows the utility derived from certain amounts of income: Income Utility40,000 20037,000 19535,000 19030,000 17020,000 14010,000 100Considering the probability of illness, what is the expected utility of income without insurance? Show your work.
Joes initial income is y 10,000. Joe experiences illness with a probability of 20%. Jo's total medical costs associated with the illness are $1000. Joe's expected income without insurance is
Consider an individual with an expected utility function of the form u(w) = √wwhere wrep-resents this individual’s wealth. This individual currently has wealth of $100. This individualfaces a risk of losing $64 with a probability of (1/2). The maximum price that this individualwould pay for insurance that covers the entire $64 loss is?
Consider an individual for whom utility is U = ln(I) There are two states of the world (G,B): Outcome G = 2000 with probability .4 Outcome B = 1000 with probability .6 W1 = 2000 L = 1000 π = .6 Option = invest $50 to lower π to .2 An insurance company is willing to offer a contract in which the individual pays a premium and gets full compensation for the loss (1000) in the bad state. a) With no insurance but the option of investing the $50, what is the utility of the individual? b) What is the first-best outcome for utility of the individual, insurance premium, and profits of the insurance company?
Wanda works as a waitress and consequently has the opportunity to earn cash tips that are not reported by her employer to the Internal Revenue Service. Her tip income is rather variable. In a good year (G), she earns a high income, so her tax liability to the IRS is $5000. In a bad year (B), she earns a low income, and her tax liability to the IRS is $0. The IRS knows that the probability of her having a good year is 0.6, and the probability of her having a bad year is 0.4, but it doesn’t know for sure which outcome has resulted for her this tax year. In this game, first Wanda decides how much income to report to the IRS. If she reports high income (H), she pays the IRS $5000. If she reports low income (L), she pays the IRS $0. Then the IRS has to decide whether to audit Wanda. If she reports high income, they do not audit, because they automatically know they’re already receiving the tax payment Wanda owes. If she reports low income, then the IRS can either audit (A) or not audit…
ASAP Consider an individual for whom utility is U = ln(I) There are two states of the world (G,B): Outcome G = 2000 with probability .4 Outcome B = 1000 with probability .6 W1 = 2000 L = 1000 π = .6 Option = invest $50 to lower π to .2 An insurance company is willing to offer a contract in which the individual pays a premium and gets full compensation for the loss (1000) in the bad state. a) With no insurance but the option of investing the $50, what is the utility of the individual? b) What is the first-best outcome for utility of the individual, insurance premium, and profits of the insurance company?
The Utility fct is U = W2/3 + 1000Flood occurs with Probabilities=1/20. The Value of house ✩540,000 if no flood. After aflood, the value is ✩40,000. Cost of insurance is 20 cents per dollar.a. Calculate EUb. Calculate EVc. Calculate CEd. Calculate RPe. Calculate the variance and standard deviationf. How much insurance should you buy? Assume your are paying premium in all event.g. What is the expected profit of the insurance company?h. Calculate the coefficient of absolute risk aversioni. Calculate the coefficient of relative risk aversion
An individual has the utility function U(I) = I^(1/2), where I is their net income. (Note that I to the exponent/power of 1/2 is the same as the square root of I.) The individual starts with $1600 in income. The individual has a 20% probability of being very sick, 30% probability of being slightly sick, and 50% probability of being healthy. If the individual is sick, they lose net income because they need to pay healthcare costs. The healthcare costs are $1600 if they are very sick, $700 if they are slightly sick, and $0 if they are healthy. Please use this information for the following parts of this question unless otherwise specified. What is the individual's expected utility? Suppose a health insurance company offers the individual a full insurance contract. What is the actuarially fair, full insurance premium for this individual? What is the individual's expected utility if they purchase a full insurance contract at the actuarially fair, full insurance premium?
The Healthcare Managers Team Challenge Question: Considering the same graph above, and assume that the probability of a hurricane in Springfield is 23% this coming summer: a) calculate the expected wealth and utility of the Simpson's residence; b) explain why Homer Simpson is likely to buy insurance, or why he might not be wanting to buy insurance. Note that if the hurricane takes place the value of the Simpsons' wealth will be $10,000. but if there is no hurricane, their wealth will remain at $20,000.
A producer collects he initial premium for a healih policy and gives he applicant a conditional receipt. In lhis situation lhe policy becomes effective at which of the following limes? A.When he premium is received in lhe insurance company's home office B.When the policy is delivered C.When the conditions of the receipt are met D.When the premium check clears the bank
Consider an insurance contract with the premium r=$200 and payout q=$800. a.) John has healthy-state income IH = $900 and sick-state income IS = $100. He has probability of illness p = 0.2. Is the contract fair and/or full for John? What is John’s expected income WITHOUT this insurance contract? What is John’s expected income WITH this insurance contract?
Suppose Grace and Lisa are to go to dinner. Lisa is visiting Grace from outof town, and they are to meet at a local restaurant. When Lisa lived in town,they had two favorite restaurants: Bel Loc Diner and the Corner Stable. Ofcourse, Lisa’s information is out of date, but Grace knows which is betterthese days. Assume that the probability that the Bel Loc Diner is better isp > 1/2 and the probability that the Corner Stable is better is 1 - p. Naturedetermines which restaurant Grace thinks is better. Grace then sends amessage to Lisa, either “Let’s go to the Bel Loc Diner,” “Let’s go to theCorner Stable,” or “I don’t know [which is better].” Lisa receives the message, and then Grace and Lisa simultaneously decide which restaurant to go to. Payoffs are such that Grace and Lisa want to go to the same restaurant, but they prefer it to be the one that Grace thinks is better. More specifically, if, in fact, the Bel Loc Diner is better, then the payoffs from theiractions are as shown in the…