Econ 350a possible exam questions

Econ 350a possible exam questions - Choice Set From Which...

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Choice Set From Which Econ 350 Examination Questions Will Be Drawn 1. Suppose there is a 50-50 chance that a risk averse individual with a current wealth of $20,000 will contract a debilitating disease and suffer a loss of $10,000. a. Calculate the cost of actuarially fair insurance in this situation and use a graph relating utility to wealth to show that the individual will prefer fair insurance against this loss to accepting the gamble uninsured. b. Suppose two type of insurance policies are available: (i.) A fair policy covering the complete loss. (ii.) A fair policy covering only half of any loss incurred. Calculate the cost of the second type of policy and show that the individual will generally regard it as inferior to the first c. Suppose, however, that people who buy cost sharing policies take better care of their own health so that the loss suffered when they are ill is reduced from $10,000 to $7,000. Now what would be the actuarially fair price for a cost sharing policy? Is it possible that some individuals might prefer the cost-sharing policy to complete coverage? What would determine whether an individual had such preferences?
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Econ 350a possible exam questions - Choice Set From Which...

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