Health Economics
14th Edition
ISBN: 9781137029966
Author: Jay Bhattacharya
Publisher: SPRINGER NATURE CUSTOMER SERVICE
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Question
Chapter 7, Problem 2E
To determine
Determine whether the given statement is true or false.
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insurance is pure liability coverage over and above the coverage provided by other types of policies.
Under symmetric information, competitive insurance markets would offer
A) complete coverage to high and low risks but, respectively, with high and low
premia.
B) incomplete coverage to both high and low risks.
C) complete coverage to high and low risks but, respectively, with low and high
premia.
D) complete coverage to low and incomplete coverage to high risks.
E) complete coverage to high and incomplete coverage to low risks.
Suppose a company offers a standard insurance contract with a premium (r) of $2,000 and a payout (q) of $10,000. Suppose that Adelia earns a healthy state income of $70,000, a sick state income of $50,000, and has a 20% chance of becoming ill. For Adelia, this insurance contract would be:
A. actuarially fair and partial
B. actuarially fair and full
C. actuarially unfair and full
D. actuarially unfair and partial
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Similar questions
- Is the decision to buy pet insurance strictly an economic decision? Explain.arrow_forwardThe difference between the actuarily fair price for insurance and the price a risk-averse individual is willing to pay to fully insure is called a-insurance benefit b-risk aversion c-the risk premium d-risk profitarrow_forwardExplain the purpose of insurance. If a mother purchases health insurance for her and her four (4) children, who is the policyholder, and who is (are) the beneficiaries?arrow_forward
- Which of the following is NOT an example of on-demand insurance? Which of the following is NOT an example of on-demand insurance? You insure your drones whenever they are taken out of your home environment You purchase an instant travel insurance for the duration of an upcoming trip Your insurance premium fluctuates depending on your driving behavior Your insurance coverage is activated whenever you take on a passenger in your car Item at position 7 7arrow_forwardYou are the wage earner in a "typical family" with a $58,000 gross annual income. Use the easy method to determine how much insurance you should carry. Answer is complete but not entirely correct. $ Insurance need 580,000 x.arrow_forwardNathan'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.arrow_forward
- Indicate whether the statement is true or false, and justify your answer.Risk-averse consumers always prefer insurance that is actuarially fair but not full to full insurance that is actuarially unfair – but the opposite is true for risk-loving consumers.arrow_forwardAn individual with the utility function given by u(y) = -e-0.5y, and gross disposable income y = 10 faces the probability p 0.3 of getting ill with health care expenditures L = 3. 1. [M] Find optimal insurance coverage if there are no loading factor and full knowledge? 2. [M] Depict this optimal choice. 3. [M] How does it depend on gross income Y?arrow_forwardAnita bought a new scooter for $500. She is deciding whether she should insureher scooter against theft. She has recently read in the news that one out of 10 scooters arestolen in her town. She can buy scooter theft insurance at the price of 12 cents per $1 ofinsurance. How much insurance will Anita buy if her utility function is U(C) = 2C + 100?arrow_forward
- Indicate whether the statement is true or false, and justify your answer.A consumer with declining marginal utility of income will never prefer actuarially fair, partial insurance to actuarially unfair, full insurance.arrow_forwardState Farm State Farm Fire and Casualty Company 11350 Johns Creek Parkway Duluth, GA 30098-0001 AT2 Matt & Sarah Justice 123 GetTheW St. Atlanta, GA 30306 YEAR 2007 NAMED INSURED SYMBOLS A DO NOT PAY PREMIUMS SHOWN ON THIS PAGE. IF AN AMOUNT IS DUE, THEN A SEPARATE STATEMENT IS ENCLOSED. YOUR CAR C D G H JINA M R1 U MAKE TOYOTA MODEL CAMRY COVERAGE & LIMITS 11-2097-4 P Liability Coverage Bodily Injury Limits Each Person, Each Accident A $100,000 $300,000 Property Damage Limit Each Accident $100,000 Medical Payments Coverage Limit- Each Person $1.000 BODY STYLE 4DR Comprehensive Coverage - $200 Deductible Collision Coverage - $1,000 Deductible Emergency Road Service Coverage Car Rental and Travel Expenses Coverage Limit- Car Rental Expense Each Day. Each Loss 80% menntunar $1.000 Uninsured Motor Vehicle Coverage (Difference-In-Limits) Bodily Injury Limits Each Person, Each Accident $50,000 $100,000 Property Damage Limit ($250 Deductible) Each Accident $50.000 Total premium for JUL 21…arrow_forwardA person's utility function is U = C1/2 . C is the amount of consumption they have in a given period. Their income is $40,000/year and there is a 2% chance that they'll be involved in a catastrophic accident that will cost them $30,000 next year. a. Calculate the actuarially fair insurance premium. What would your expected utility be if you were to purchase the actuarially fair insurance premium? b. What is the most you would be willing to pay for insurance, given your utility function?arrow_forward
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