Consumption-Smoothing Benefits of Insurance. Amy's utility function is where C is consumption and is given by...
A person's utility function is U = C1/2 . C is the amount of consumption they have in a given period. Their income is $40,000/year and there is a 2% chance that they'll be involved in a catastrophic accident that will cost them $30,000 next year. a. Calculate the actuarially fair insurance premium. What would your expected utility be if you were to purchase the actuarially fair insurance premium? b. What is the most you would be willing to pay...
Victoria has $2000 to put toward consumption this month. She believes there is a 40% chance she will have a bike accident this month, in which case she will incur medical costs of $1500 (leaving her with $500 to put toward consumption). Victoria's utility over consumption is given by where c is consumption (in dollars). In the absence of any insurance, the expected value of Victoria's consumption this month is $ utility Victoria receives from her consumption this month is...
Victoria has $2000 to put toward consumption this month. She believes there is a 40% chance she will have a bike accident this month, in which case she will incur medical costs of $1500 (leaving her with $500 to put toward consumption). Victoria's utility over consumption is given by where c is consumption (in dollars). In the absence of any insurance, the expected value of Victoria's consumption this month is $ utility Victoria receives from her consumption this month is...
Please answer question 4 Victoria has $2000 to put toward consumption this month. She believes there is a 40% chance she will have a bike accident this month, in which case she will incur medical costs of $1500 (leaving her with $500 to put toward consumption). Victoria's utility over consumption is given by where c is consumption (in dollars). In the absence of any insurance, the expected value of Victoria's consumption this month is $ 14 utility Victoria receives from...
Your utility function is given by U = , where C is consumption. You make $175,000 per year and enjoy jumping off bridges attached to a bungee cord. There's a 10% chance that, in the next year, you'll break both legs and will incur medical costs of $30,000 and will lose an additional $60,000 from missing work because of the loss of a working pair of legs for half the year. A.) What is your expected utility without insurance for...
2. A consumer's utility of income is given by the function U(.). The consumer has initial income $Y, but risks losing $L with probability p. If a company offers insurance, the contract consists of coverage $q at price $a per dollar of coverage. (a) Using the notation above, what is the consumer's expected utility with insurance? (b) Define actuarially fair insurance. What are the sufficient assumptions for insurance to be actuarially fair? (c) Prove that, if insurance is actuarially fair,...
Please use questions 2 & 3 to answer question 4-- show work clearly (I solved it and got: 3100, 621-- is this correct?) Question 2 4 pts Victoria has $4000 to put toward consumption this month. She believes there is a 30% chance she will have a bike accident this month, in which case she will incur medical costs of $3000 (leaving her with $1000 to put toward consumption). Victoria's utility over consumption is given by U = 0.8 where...
Question 8 3 pts Like Victoria from the previous questions, David has $2000 to put toward consumption this month. Also like Victoria, David believes there is a 40% chance he will have a bike accident this month, in which case he expects to incur medical costs of $1500 (leaving him with $500 to put toward consumption). Unlike Victoria, though, David's utility over consumption is given by Suppose again that the premium for $1500 in insurance coverage is $750, and that...
intermediate micro 4. Steve's utility function over leisure and consumption is given by NLY) - min (31.7. Wage rate is w and the price of the composite consumption good is p=1. (a) Suppose w = 5. Find the optimal leisure consumption combination. What is the amount of hours worked? (b) Suppose the overtime law is passed so that every worker needs to be paid 1.5 times their current wage for hours worked beyond the first 8 hours, Will this law...
Understanding demand for health insurance is a key to formulating good health policy. In this question you will model how much people are willing to pay for a health insurance plan. Here are our starting assumptions: - the consumer has an income of $49 next year - if he gets sick he will have to pay $40 for medicine - he has a 20% chance of getting sick (a) Suppose your utility function is ?(?) = √? . Calculate the...