ps2 - Economics 330T: Fall 2009 Problem Set 2 DUE:...

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Economics 330T: Fall 2009 Helen Schneider Problem Set 2 DUE: WEDNESDAY, SEPTEMBER 23 NAME: _________________________________ I. Demand for Medical Care 1. #8, Chapter 4, p. 123. ( 15 points ) 2. #9, Chapter 4, p. 123. ( 10 points ) II. Demand for Health Insurance . 3. #1, Chapter 10, p. 338 ( 10 points ) 4. Sally is a UT student and an athlete on the Longhorn gymnastics team. She has $22,500 in annual income and her utility function is U = I ½ . In any given year she faces a 25% chance of a serious sports injury. If the injury happens, medical expenditures for Sally will be $12,500. A health insurance company offers a policy that will cover all medical expenditures due to sports injuries at the premium of $4,000 per year. (a) What is Sally’s expected utility without health insurance? (b) What is the actuarially fair premium? What is the loading fee in this case? (c) What is Sally’s maximum willingness to pay for health coverage? (d) What is Sally’s risk premium?
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This note was uploaded on 10/25/2010 for the course ECO 330T taught by Professor Schneider during the Spring '09 term at University of Texas.

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ps2 - Economics 330T: Fall 2009 Problem Set 2 DUE:...

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