Consider 500 people who each have a 12% chance of getting sick this year. If they get sick, they will have a $10,000 hospital bill. If they do not get sick, they will have no medical expenses. All 500 people are risk-averse, but they differ with respect to the degree of their risk- aversion. Half of them are very risk-averse and willing to pay a risk premium equal to 40% of the actuarially fair premium. The other half are less risk-averse and are only willing to pay a risk premium equal to the 25% of the actuarially fair premium.
a. What is the actuarially fair premium for a more risk-averse person? What is the actuarially far premium for a less risk-averse person?
b. What premium is a more isk-averse person willing to pay? What premium is a less risk- averse person willing to pay?
c. What does the demand curve for insurance look like? Plot it in a standard diagram with quantity of people who buy insurance on the horizontal axis and the price of insurance (i. e., premium) on the vertical axis. (Hint: Demand is not a smooth, straight line. The quantity demand abruptly jumps up when the insurance premium crosses certain thresholds.)
d. Suppose that the insurance market is competitive with free entry and exit. Competitive forces therefore lead insurers to sell insurance at the actuarially fair price. How many people buy insurance? What is the consumer surplus for the 250 people who are more risk-averse? What is it for the 250 people who are less risk-averse? What are insurers' expected profits? (Note: It may help to identify the consumer surplus in your diagram from partc.)
e. Now suppose insurers are successful at lobbying legislators to disallow entry from new insurance companies. Without as much competition, insurers are now able to charge a premium that is 30% more than actuarially fair price. How many people buy insurance now? What is the consumer surplus for the 250 people who are more risk-averse? What is it for the 250 people who are less risk-averse? What are insurers' expected profits? (Note: It may help to identify the new consumer and producer surplus in your diagram from partc.)
f. What is the effect of part e's barrier to entry on consumer surplus? What is the effect on producer surplus (i. e., insurers expected profits)? What is the effect on social surplus (i... the sum of consumer and producer surplus)?
Answers: 2
Another question on Business
Business, 21.06.2019 18:00
Sara bought 12 3/4 cakes sara's friends ate 3/8 how much cake is left
Answers: 1
Business, 21.06.2019 22:30
Quantitative problem: you need $20,000 to purchase a used car. your wealthy uncle is willing to lend you the money as an amortized loan. he would like you to make annual payments for 4 years, with the first payment to be made one year from today. he requires a 8% annual return. what will be your annual loan payments? round your answer to the nearest cent. do not round intermediate calculations. $ how much of your first payment will be applied to interest and to principal repayment? round your answer to the nearest cent. do not round intermediate calculations. interest: $ principal repayment
Answers: 1
Business, 22.06.2019 06:00
Transactions on april 1 of the current year, andrea byrd established a business to manage rental property. she completed the following transactions during april: opened a business bank account with a deposit of $45,000 from personal funds. purchased office supplies on account, $2,000. received cash from fees earned for managing rental property, $8,500. paid rent on office and equipment for the month, $5,000. paid creditors on account, $1,375. billed customers for fees earned for managing rental property, $11,250. paid automobile expenses for month, $840, and miscellaneous expenses, $900. paid office salaries, $3,600. determined that the cost of supplies on hand was $550; therefore, the cost of supplies used was $1,450. withdrew cash for personal use, $2,000. required: 1. indicate the effect of each transaction and the balances after each transaction: for those boxes in which no entry is required, leave the box blank. for those boxes in which you must enter subtractive or negative numbers use a minus sign. (example: -300)
Answers: 1
Business, 22.06.2019 12:10
In year 1, the bennetts' 25-year-old daughter, jane, is a full-time student at an out-of-state university but she plans to return home after the school year ends. in previous years, jane has never worked and her parents have always been able to claim her as a dependent. in year 1, a kind neighbor offers to pay for all of jane's educational and living expenses. which of the following statements is most accurate regarding whether jane's parents would be allowed to claim an exemption for jane in year 1 assuming the neighbor pays for all of jane's support? a.no, jane must include her neighbor's gift as income and thus fails the gross income test for a qualifying relative.b.yes, because she is a full-time student and does not provide more than half of her own support, jane is considered her parent's qualifying child.c.no, jane is too old to be considered a qualifying child and fails the support test of a qualifying relative.d.yes, because she is a student, her absence is considered as "temporary." consequently she meets the residence test and is a considered a qualifying child of the bennetts.
Answers: 2
You know the right answer?
Consider 500 people who each have a 12% chance of getting sick this year. If they get sick, they wil...
Questions
Biology, 19.09.2019 18:00
Mathematics, 19.09.2019 18:00
Computers and Technology, 19.09.2019 18:00
