Anita bought a new scooter for $500. She is deciding whether she should insure her scooter against theft. She has recently read in the news that one out of 10 scooters are stolen in her town. She can buy scooter theft insurance at the price of 12 cents per $1 of insurance. How much insurance will Anita buy if her utility function is U(C) = 2C + 100?

Anita bought a new scooter for $500. She is deciding whether she should insure her scooter against theft. She has recently read in the news that one out of 10 scooters are stolen in her town. She can buy scooter theft insurance at the price of 12 cents per $1 of insurance. How much insurance will Anita buy if her utility function is U(C) = 2C + 100?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter16: Information, Risk, And Insurance

Section: Chapter Questions

Problem 17RQ: How might adverse selection make it difficult for an insurance market to operate?

See similar textbooks

Related questions

Q: Is the decision to buy pet insurance strictly an economic decision? Explain.

A: An economic decision is a decision when people have to choose between options due to scarcity of…

Q: 1. Individual Problems 20-1 Your product fails about 2% of the time, on average. Some customers…

A: The possibility that a party did not enter into a contract in good faith or providing false…

Q: What is an actuarially fair insurance policy?

A: Insurance is a way of defending against economic risks. It is a contract through which an individual…

Q: Suppose that there is a 20% chance Malik is injured and earns $100,000, and an 80% chance he stays…

A: Insurance is a legal agreement between a person and an insurance provider whereby the person agrees…

Q: Q4. Ms. İpek wants to make auto insurance for her car worth 250,000 TL. Historical data shows that…

A: Given Ms. Ipek's car is worth (W) =250,000 The probability to have accident of 50,000 in a year is…

Q: Use the figure below. Bob and Nancy have the same income and total utility. Nancy will be willing to…

A: A higher risk averse individual always ready to pay more money as risk premium to convert a gamble…

Q: John has got a Billie Eilish concert ticket for $600. However, when he arrived at the concert venue,…

A: The price consumer pays for good based on the maximum willingness of consumer to pay for good.

Q: You own a house worth $700,000 that is located on a river. If the river floods moderately, the house…

A: Estimated Cost: The estimated cost is the projected amount that may be arouse in completing a…

Q: Gary likes to gamble. Donna offers to bet him $31 on the outcome of a boat race. If Gary’s boat…

A: Not taking the gamble gives the $80 as an utility to gary.

Q: Why is it important to carry auto insurance? O To protect against the risk of a natural disaster O…

A: Auto Insurance:- Auto-insurance is a type of insurance that provide protection to the insured…

Q: An individual has 40,000 in income per year. The person will get sick with probability 0.1. If he…

A: A. To check if this individual is risk-neutral, risk-loving, or risk-averse we will first plot the…

Q: mpany of 5000. Safe drivers have a lower probability of accidents with óf $: áfé dřivers have a…

A: Insurance is a policy, addressed by an approach, where an individual or element gets monetary…

Q: 1)Describe an example of moral hazard that we may run into in the real world. Think of something…

A: Moral hazard in economics refers to a situation where one party takes risks because the potential…

Q: 4. Suppose co = 0 and c1 = 70, 000. Is insurance at coverage level z > 0 fair insurance? What…

A: 4. For any z>0, the cost of insurance is C(z)=70000z The expected value of payout is given by…

Q: Sadija has a concave utility function of U(W) = In(W). She has inherited a ring from a relative, but…

A: Part a: ln (W) = 1/3 ln(6000) + 2/3ln(3000) ln(W) = 8.69951474821(1/3) + 8.00636756765(2/3) ln(W) =…

Q: You start an insurance company as your first entrepreneurial venture after graduation. Your main…

A: Expected value is the value that is calculated by taking a summation of the products of the outcomes…

Q: Draw a utility function over income u( I) that describes a man who is a risk lover when his income…

A: In this question we have to find out the why utility function might reasonably with the help of the…

Q: Fiona has von Neumann-Morgenstern utility function u(x) = VT and initial wealth 640, 000. She faces…

A: Risk-averse people will not be willing to take risks. Given: u(x)=x1/2 Initial Worth = 640,000…

Q: the video link is: https://www.youtube.com/watch?v=aqEz6kvXhc8please give me detailed solutions and…

A: a. The difference between Jill's expected utility with and without insurance is her risk premium, or…

Q: 3. Suppose you're a professional athlete and you're expecting to eam M2 this year. However, if you…

A: Insurance is a strategy of protecting oneself against financial loss. It is a type of risk…

Q: What are some ways a seller of goods might reassure a possible buyer who is faced with imperfect…

A: Following are the ways which reassure the buyer if faced with imperfect information : 1. Money-Back…

Q: 5. Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser…

A: The Von Neumann-Morgenstern (VNM) utility index is an index that measures an individual's preference…

Q: What is insurance 6. Explain threx principles of insurance

A: Individuals benefit from insurance plans because they safeguard themselves, their families, and…

Question

Anita bought a new scooter for $500. She is deciding whether she should insure
her scooter against theft. She has recently read in the news that one out of 10 scooters are
stolen in her town. She can buy scooter theft insurance at the price of 12 cents per $1 of
insurance. How much insurance will Anita buy if her utility function is U(C) = 2C + 100?

Video Video

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Utility Theory You live in an area that has a possibility of incurring a massive earthquake, so you are considering buyingearthquake insurance on your home at an annual cost of $180. The probability of an earthquake damagingyour home during one year is 0.001. If this happens, you estimate that the cost of the damage (fully coveredby earthquake insurance) will be $160,000. Your total assets (including your home) are worth $250,000. A. Apply Bayes’ decision rule to determine which alternative (take the insurance or not) maximizes yourexpected assets after one year.
In the summer of 1984, Nicholai opened a small art gallery in the West Village and amassed a collection worth $2,60,000. An insurance company figured there was a 5% chance the collection would be destroyed and worth $0. Nicholai has utility u(x) = x0.5. If Nicholai purchases full insurance at a fair price, his expected utility would be ___. while if he declines the insurance he would face an expected utility of а. 1,487.5; 1,531.8 b. 1,487.5; 1,444.9 с. 1,571.6;B 1,531.8 d. 1,571.6; 1,444.9
Do it correctly this time
Typed Plzzzz And Asap Thanks
Nathan's income in a typical year is 75,000. There is a 10 percent chance that Nathan will be seriously ill next year, incurring 15,000 in medical expenses. Samantha also earns 75,000 in a typical year. Her chance of becoming seriously ill next year and incurring ur 15,000 in medical expenses is 20 percent. a. Calculate the actuarially fair premium for full insurance for (i) Nathan and (ii) Samantha. b. Suppose that a private insurance firm cannot distinguish between Nathan and Samantha in terms of their risk and assumes the risk of being seriously ill in the general population is 10%. In this context, discuss the adverse selection problem the firm might face. c. Can a compulsory, government - run health insurance program avoid the problem of adverse selection? Explain why or why not.
1. Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with von Neumann-Morgenstern utility index . There is a 1 % probability that there is flooding damage at her house. The repair of the damage would cost £80,000 which would reduce the income to £10,00 A. Would Priyanka be willing to spend £500 to purchase an insurance policy that would fully insure her against this loss? Explain. B. What would be the highest price (premium) that she would be willing to pay for an insurance policy that fully insures her against the flooding damage?
Please do a iv, and b i and ii
Michael lives on an island and owns a beach house worth $400,000. Of that, $100,000 is the cost of land and $300,000 is the cost of the structure. The probability that a hurricane destroys his house is 3percent (he will still own the land). Michael can purchase hurricane insurance at the price of $2for each $100 of coverage. 1. What is Michael’s contingent consumption bundle if Michael does not purchase insurance
Why do economists say that people tend to be risk-averse?
2
Why is it important to carry auto insurance? O To protect against the risk of a natural disaster O To protect against the risk of serious illness O To protect against the risk of a car accident O To protect against the risk of income loss
What does it mean to be Risk Averse?