Insurance market question:  Draw a graph with utility on the Y axis and income on the X axis for a risk averse person. Label the following points on the Y axis The expected value of utility while uninsured The expected value of utility with actuarially fair, full insurance The expected value of utility with actuarially far, partial insurance

Continue from Question 16: You make $20,000 per year, and there's a $100 insurance expense to mitigate a 1% risk of a $10,000 accident. Utility without insurance and no accident = 2000 Utility without insurance with accident = 1500 What is the expected utility "without" insurance? Utility "2000" "1999" "1500" 1999 2000 1995 1500 $10,000 $19,900 $20,000

ease use utility of wealth function in the booK, 8-1 (see below). Certainty Utility B D 200 198 194 D' Total utility 170 of wealth C' Expected Utility A 140 10,000 15,000 19,000 20,000 Wealth FIGURE 8-1 Total Utility of Wealth and the Impact of Insurance Please explain the difference between the certainty utility line and the expected utility line b. Calculate your E(U), given an 80% change of being healthy and 20% of being sick, knowing that your income falls to $10,000 and your utility is 140 if you get sick. Calculate your E(W), given an 80% change of being healthy and 20% of being sick. d. Given that your Certainty Utility Function is U = 200Y-0.00154 and Y is your income, what is your Certainty Utility with insurance (if you are risk averse) What insurance premium will you pay to guarantee a utility of 197? Please provide a calculation.

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.