The following questions refer to the demand for health insurance. Consider the following: Aditi can chose...

The following questions refer to the demand for health insurance. Consider the following:

Aditi can chose to insure herself or not insure.

· She makes $20,000 if she is not sick, and only $10,000 if she is sick. Given that she is sick, the insurance company will pay out $10,000 if she has insurance coverage

· Probability of her being sick is 0.2

· The cost of insurance is $2000.

Here is the income utility schedule.

Income (in dollars)	Utility (Utils)
10000	140
18000	288
20000	300

Calculate the expected income and expected utility, respectively.

Say she decides to get the insurance. What is her final income when sick? What is her final

Given the income/utility schedule and your calculations in part 1, would she get the insurance?

Does the insurance contract meet the conditions for a full insurance contract?

What is the actuarial fair premium in this case?

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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