A consumer has utility u(1) = Vī and income $1,000. When sick, the consumer must go to the doctor, which costs a $400 without insurance. If the consumer goes to the gym, the probability of getting sick is 20%, but if she does not go to the gym, the probability of getting sick is 90%. The cost of going to the gym is $50. An insurance company is offering a health insurance plan that will fully cover the cost of going to the doctor. The cost of this insurance is $100 Use this information to answer #16 and #17. 16. The consumer's expected utility from purchasing insurance and going to the gym is а. 24.5 b. 25.6 с. 29.2 d. 30.0 е. 30.1 17. In this situation, consumers will and the insurance company will earn a. Purchase insurance and go to the gym; negative profit b. Purchase insurance and stop going to the gym; negative profit c. Purchase insurance and go to the gym; positive profit d. Purchase insurance and stop going to the gym; positive profit e. Not purchase insurance and go to the gym; no profit

A consumer has utility u(1) = Vī and income $1,000. When sick, the consumer must go to the doctor, which costs a $400 without insurance. If the consumer goes to the gym, the probability of getting sick is 20%, but if she does not go to the gym, the probability of getting sick is 90%. The cost of going to the gym is $50. An insurance company is offering a health insurance plan that will fully cover the cost of going to the doctor. The cost of this insurance is $100 Use this information to answer #16 and #17. 16. The consumer's expected utility from purchasing insurance and going to the gym is а. 24.5 b. 25.6 с. 29.2 d. 30.0 е. 30.1 17. In this situation, consumers will and the insurance company will earn a. Purchase insurance and go to the gym; negative profit b. Purchase insurance and stop going to the gym; negative profit c. Purchase insurance and go to the gym; positive profit d. Purchase insurance and stop going to the gym; positive profit e. Not purchase insurance and go to the gym; no profit

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 Utility 40,000 200 37,000 195 35,000 190 30,000 170 20,000 140 10,000 100 At the actuarially fair rate, will the person choose to buy insurance or face the risk of going uninsured? Explain why.
Utility Theory You live in an area that has a possibility of incurring a massive earthquake, so you are considering buyingearthquake insurance on your home at an annual cost of $180. The probability of an earthquake damagingyour home during one year is 0.001. If this happens, you estimate that the cost of the damage (fully coveredby earthquake insurance) will be $160,000. Your total assets (including your home) are worth $250,000. A. Apply Bayes’ decision rule to determine which alternative (take the insurance or not) maximizes yourexpected assets after one year.
QUESTION 5 A consumer has utility u (I) = √I and income $1,600. The cost of going to the doctor is $1,150, and the cost of going to the gym is $150. If the consumer goes to the gym, the probability of getting sick is 20%; if she does not go to the gym, the probability of getting sick is 80%. When sick, the consumer must go to the doctor. An insurance company is offering a health insurance plan with an insurance premium of $230 and a co-pay of $110 (that is, the consumer must pay the $110 if she goes to the doctor). a) The consumer's expected utility from purchasing this insurance and going to the gym is b) The consumer's expected utility from purchasing this insurance and not going to the gym is c) In this market, the $110 copay ✓ QUESTION 6 A salesperson is trying to sell ca Given her effort e, with probabili The dealership pays her a bonu a) Given the bonus b, the salesp b) Suppose the dealership pays *Select Answer* 34.6061 35.7999 37.0135 43.0338 42.4303 46.2601 fixes the adverse…
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.
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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 Utility 40,000 200 |37,000 195 35,000 190 30,000 170 |20,000 140 10.000 100 A. Is this person risk neutral, risk loving or risk averse? Why? B. Considering the probability of illness, what is the expected income without insurance? Show your work.
Suppose that there is asymmetric information in the market for used cars. Sellers know the quality of the car that they are selling, but buyers do not. Buyers know that there is a 30% chance of getting a "lemon", a low quality used car. A high quality used car is worth $30,000, and a low quality used car is worth $15,000. Based on this probability, the most that a buyer would be willing to pay for a used car is $ 25500. (Enter your response rounded to the nearest dollar.) Which of the following would best "solve" the asymmetric information problem in this market? O A. Prohibiting the sale of low-quality cars. O B. High-quality sellers could offer warranties or product guarantees. OC. Low-quality sellers could establish industry standards. O D. It is not possible to solve the asymmetric information problem in this market.
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