and you have a 10% chance of getting sick. Your income when sick is $0 and your income when healthy is $100.1. Assume your utility over income is U=T ¥1. Graph your utility and income with income on the x-axis and utility on the y-axis. Show your income/utility when healthy and sick on the graph.2. calculate your expected income. Show on graph.3. calculate your expected utility. Show on graph.1. Now you are offerred health insurance by Prof. Grossman's Totally Full and Fair Insurance Company. For a premium of $20, you will get a payout of $50 if you get sick.1. Is the insurance company's name accurate (is this actuarially fair and full)?2. What is the expected payout from this insurance?3. What is the Income when sick and income when healthy under insurance? Show on your graph4. What is the expected income and expected utility under this insurance? Show each on your graph5. Propose a full and fair insurance given your 10% chance of getting sick and your healthy and sick incomes.1. What is the premium and payout, show on the graph your utility in this situation.

Answered: Assume your utility over income is U=T…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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and you have a 10% chance of getting sick. Your income when sick is $0 and your income when healthy is $100.
1. Assume your utility over income is U=T ¥
1. Graph your utility and income with income on the x-axis and utility on the y-axis. Show your income/utility when healthy and sick on the graph.
2. calculate your expected income. Show on graph.
3. calculate your expected utility. Show on graph.
1. Now you are offerred health insurance by Prof. Grossman's Totally Full and Fair Insurance Company. For a premium of $20, you will get a payout of $50 if you get sick.
1. Is the insurance company's name accurate (is this actuarially fair and full)?
2. What is the expected payout from this insurance?
3. What is the Income when sick and income when healthy under insurance? Show on your graph
4. What is the expected income and expected utility under this insurance? Show each on your graph
5. Propose a full and fair insurance given your 10% chance of getting sick and your healthy and sick incomes.
1. What is the premium and payout, show on the graph your utility in this situation.

Expert Solution

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"Since you have asked multiple questions, we will solve the first question for you. If you want any specific question to be solved, please repost only that question"

Given:

The utility function over income is: $U = \sqrt{I}$

Chance of getting sick = 10%

Income when sick = $0

Income when healthy = $100

To Find:

The expected utility:
The expected income:
Graph the utility and income with income on the x-axis and utility on the y-axis. Show your income/utility when healthy and sick on the graph.

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