ANS+to+EXAM+2+-+Health+Econ,+Spring+2010 - in consumers...

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Department of Economics Prof. Derek DeLia Health Economics 220:316:01 Spring 2010 ANSWERS TO EXAM 2 PART I Question Answer 1 d 2 e 3 b 4 a 5 d 6 c 7 b 8 e 9 a 10 e 11 c 12 a 13 d 14 c 15 b PART II a. Q=22.8, P=14.4 b. Q=22.8. The consumer would have to spend an extra $171.68 to gain an additional $51.48 in consumer’s surplus. This is clearly not worth it, so the consumer uses the same amount of healthcare as in part a. c. The equilibrium is allocatively efficient, since the only units consumed are those where value is greater than or equal to marginal cost. d. this is similar to part b except now the consumer would have to spend $671.68 to gain $51.48
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Unformatted text preview: in consumers surplus. Again, not worth it. e. This answer is the same as part c. PART III a. U(W) = -1/W 2 < 0 for all W>0. Therefore, the consumer is risk averse. b. The objective function is F(a) = 0.2*ln[500,000 10,300a (1-a)50,000] + 0.8*ln[500,000 10,300a] Since U(W) is concave (i.e., risk averse consumer), setting the first derivative of F(a) to zero gives maximum utility. This happens when a = 0.64....
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This note was uploaded on 05/05/2010 for the course ECON 316 taught by Professor Delia during the Spring '10 term at Rutgers.

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