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# Consider the problem of demand for insurance set up in Lecture 8. Assume that the vNM utility1 is 11(3) = log(x). Explicitly solve for the optimal...

Q8. Consider the problem of demand for insurance set up

8. Consider the problem of demand for insurance set up in Lecture 8. Assume that the vNM
utility1 is 11(3) = log(x). Explicitly solve for the optimal (1* and, using your derivation,
answer the following: a. The demand for insurance a&quot; is increasing in wealth only when p &gt; q.
b. The demand for insurance a” is decreasing in wealth only when p &lt; q. c. Neither (a) nor (b) — how the wealth affects demand depends on how small the loss
L is. (1. None of the above. Blog(a:) __i
5:: — :c' 1. We are using the same notation log(:r) = ln(:r). In particular,

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