Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Question
Chapter 20, Problem 14APA
To determine
Identify whether C is willing to buy the insurance or not.
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What is an insurance premium?
insurance is pure liability coverage over and above the coverage provided by other types of policies.
John owns and runs a food truck, which he expects to increase his wealth to $40,000 this year. John knows that every year, there
is a 20% chance that his truck will be firebombed by one of his ruthless food truck competitors. If this happens, he will face a bill
of $10,000 in repairs and lost income. John can choose to get insurance to cover all repair costs and lost wealth. Use this
information and the information in the table and graph to answer the questions.
Total utility
Wealth
Total utility (utils)
730
1000
$32,000
900
$34,000
755
800
700
$36,000
785
600
792
500
$38,000
400
300
200
100
0
$5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000
Wealth
What is John's expected wealth?
expected wealth: $
What is the price for John's insurance?
price of insurance: $
What is John's expected utility without insurance?
expected utility: 730
If John chooses to pay the insurance policy price, what would
be his total utility?
total utility:
1030
42000
10000
utils
utils
Chapter 20 Solutions
Macroeconomics
Ch. 20.1 - Prob. 1RQCh. 20.1 - Prob. 2RQCh. 20.1 - Prob. 3RQCh. 20.1 - Prob. 4RQCh. 20.2 - Prob. 1RQCh. 20.2 - Prob. 2RQCh. 20.2 - Prob. 3RQCh. 20.2 - Prob. 4RQCh. 20.3 - Prob. 1RQCh. 20.3 - Prob. 2RQ
Ch. 20.3 - Prob. 3RQCh. 20.3 - Prob. 4RQCh. 20.4 - Prob. 1RQCh. 20.4 - Prob. 2RQCh. 20.4 - Prob. 3RQCh. 20 - Prob. 1SPACh. 20 - Prob. 2SPACh. 20 - Prob. 3SPACh. 20 - Prob. 4SPACh. 20 - Prob. 5SPACh. 20 - Prob. 6SPACh. 20 - Prob. 7APACh. 20 - Prob. 8APACh. 20 - Prob. 9APACh. 20 - Prob. 10APACh. 20 - Prob. 11APACh. 20 - Prob. 12APACh. 20 - Prob. 13APACh. 20 - Prob. 14APACh. 20 - Prob. 15APACh. 20 - Prob. 16APACh. 20 - Prob. 17APACh. 20 - Prob. 18APACh. 20 - Prob. 19APACh. 20 - Prob. 20APACh. 20 - Prob. 21APACh. 20 - Prob. 22APACh. 20 - Prob. 23APA
Knowledge Booster
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