pubsec-ex2

pubsec-ex2 - B R A N D E I SU N I V E R S I T Y Departmentf...

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Economics 134 Public Sector BRANDEIS UNIVERSITY Department of Econom ics Second Midterm Mr. Coiner Spring, 2009 L Suppose your income this year will be $160,000 if everything goes well. However, there is a 27o chance that you will have an "accident" this year which will reduce your income to $40,000. Your utility function is u :.^F, where Y is your income. a) What is the "actuarily fair" premium for full insurance coverage against this possible loss? b) What is the maximum premium that you would be willing to pay for full coverage? 2. Suppose that, in the nation of Gruberland, there are I 00,000 people living in families w ith incomes less than $60,000 per year, and 100,000 people living in families with incomes above that
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pubsec-ex2 - B R A N D E I SU N I V E R S I T Y Departmentf...

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