Question
In: Economics
Amy’s utility function is U = √ C, where C is consumption and is given by...
Amy’s utility function is U = √ C, where C is consumption and is given by C = Income − Expenses. Amy’s income is $10,000 and there is a 5% chance that she will get sick, which would cost $3,600 in medical expenses.
(a) (5 points) What is Amy’s expected utility if she doesn’t have insurance?
(b) (5 points) What is the actuarially fair premium for a full-coverage insurance plan? What is the actuarially fair premium for an insurance plan that provides 50% coverage?
(c) (5 points) What is the maximum premium that Amy would be willing to pay for a full-coverage insurance plan?
(d) (5 points) Suppose now there’s a government mandate: everyone must either buy full-coverage health insurance at a premium of $200, or pay a fine of $150 and stay uninsured. Would Amy purchase the health insurance or not?
Solutions
Expert Solution
D) as EU is higher with insurance, than with fine,
So insurance will be bought
Rahul Sunny answered 2 years agoRelated Solutions
A individual has a utility function u(c) = √ c, where c is the individual’s consumption....
A individual has a utility function u(c) = √ c, where c is the
individual’s consumption. (The individual consumes his entire
wealth.) The individual’s wealth is $40,000 per year. However,
there is a 2% chance that he will be involved in a catastrophic
accident that will cost him $30,000.
PLEASE SHOW WORK
a. What is the individual’s utility from consumption if there is
no accident? What is his utility if there is an accident? What is
his expected utility?
b....
Consider an individual with the following utility function: U = min{c, h} Where c is consumption...
Consider an individual with the following utility
function:
U = min{c, h}
Where c is consumption and h is leisure. The wage rate is $15
per hour, and the total number of hours available to the individual
is normalized to 1.
Find out the optimal level of consumption, leisure and
labor.
The government imposes a tax of $2 per hour of labor. Find out
the new optimal values of consumption, leisure and labor.
Comment on the form of the utility...
Question 1: Given the following utility function: (U=Utility, l=leisure, c=consumption) U = 2l + 3c and...
Question 1:
Given the following utility function: (U=Utility, l=leisure,
c=consumption)
U = 2l + 3c
and production function: (Y=Output, N or Ns=Labour or Labour
Supply)
Y = 30N1/2
If h = 100 and G =10 (h=Hours of labour, G=Government spending).
Find the equilibrium levels of the real wage (w), consumption (c),
leisure (l), and output (Y).
Question 2: (Continuting from question 1)
a, Find the relationship between total tax revenue and the tax
rate if G = tWN. (G=Government spending,...
Question 1: Given the following utility function: (U=Utility, l=leisure, c=consumption) U = 2l + 3c and...
Question 1: Given the following utility function: (U=Utility,
l=leisure, c=consumption) U = 2l + 3c and production function:
(Y=Output, N or Ns=Labour or Labour Supply) Y = 30N1/2 If h = 100
and G =10 (h=Hours of labour, G=Government spending). Find the
equilibrium levels of the real wage (w), consumption (c), leisure
(l), and output (Y). Question 2: (Continuting from question 1) a,
Find the relationship between total tax revenue and the tax rate if
G = tWN. (G=Government spending,...
If the Utility function for the consumption of milk and bananas is given by U =qm0.6qb0.4...
If the Utility function for the consumption of milk and bananas
is given by U
=qm0.6qb0.4
and the price of milk is $12 and price of banana is $8, find
Marginal Utility from consuming milk
Marginal Utility from consuming banana
Will the consumer be maximizing satisfaction when he/she
consumes one unit each of milk and bananas? If
not, what should he/she consume next to increase satisfaction?
Will the consumer be maximizing satisfaction when he/she
consumes two units of milk and...
Suppose a worker's utility function is U(C, L) = C^2 +(2nL)^2 , where C denotes consumption...
Suppose a worker's utility function is U(C, L) = C^2 +(2nL)^2 ,
where C denotes consumption and L leisure. Let T denote time
available to split between leisure and work, w denote the wage rate
and V = 0 denote non-labor income (as in the lecture).
(a) What is the worker's optimal choice of C and L as a function
of w, T, and n?
(b) What is the worker's reservation wage as a function of T and
n?
(c)...
Jo has preferences described by the utility function, U = c0.5r0.5. Where c denotes her consumption...
Jo has preferences described by the utility function, U =
c0.5r0.5. Where c denotes her consumption of carrots in ounces and
r denotes her consumption of red meat in ounces. She faces two
constraints,
1) she has an income of 1000 and the price of c is 10, while the
price of r is 20.
2) due to health concerns, the government does not allow anybody
to consume more than 80 ounces of r.
a) write down the Lagrangian and...
Consider an economy where the representative consumer has a utility function u (C; L) over consumption...
Consider an economy where the representative consumer has a
utility function u (C; L) over consumption C and leisure L. Assume
preferences satisfy the standard properties we saw in class. The
consumer has an endowment of H units of time that they allocate to
leisure or labor. The consumer also receives dividends, D, from the
representative Örm. The representative consumer provides labor, Ns,
at wage rate w, and receives dividends D, from the representative
Örm. The representative Örm has a...
Sophie's given utility function is U(V, C) = VC + V where V = # of...
Sophie's given utility function is U(V, C) = VC + V where V = #
of visits per month and C = # of minutes per month (hundreds). V =
$1 and C = $4 and M = $44.
a) Calculate the equation that represents the consumers demand
for number of visits (V).
b) Say that V increases to $16. Calculate the new equilibrium.
Compute Sophie's substitution and income effect and represent it
within a diagram.
A person's utility function is U = C1/2 . C is the amount of consumption they...
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. What is their expected utility?
b. Calculate the actuarially fair insurance premium.
c. What would their expected utility be if they purchased the
actuarially fair insurance premium?
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Convert the following numbers as indicated. Use as few digits in the results as necessary or...
- Java program to implement the merge sort your own and test it to sort a list...
- CODE IN C++ PLEASE Write a program to implement the algorithm that you designed in Exercise...
- Show your work please What is the discount yield, bond equivalent yield, and effective annual return...
- Case 7 of the textbook examines the rise of Wal-Mart as a corporate bohemoth. One of...
- The type of listening that involves trying to understand a situation from the speaker’s perspective is...
- Based on the loanable funds theory, explain how each of the following changes should impact interest...
ADVERTISEMENT