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Although self-employed workers have the option to purchase private health insurance, many do not, due to adverse selection. Suppose half the population is healthy and half is unhealthy. The cost of getting sick is $1000 for the healthy and $10,000 for the unhealthy. An individual becomes sick with probability 0.4, regardless of health. The utility of wealth is U(Y) = Y^0.5 for everyone. Although an individual knows whether he is healthy or not, the insurance company does not. Everyone is offered the same insurance premium. Assume insurance companies must make zero expected profits.a. Find the premium corresponding to actuarially fair insurance when everyone purchases insurance. Is it different from the price an insurance company that makes zero expected profits offers?b. If the price determined in a. is offered to the healthy people, do they buy insurance? Explain.c. Find the price of actuarially fair insurance if only unhealthy people purchase insurance.d. If the price determined in part c. is offered to them, do unhealthy people buy insurance? Explain.e. Given your analysis above, what happens in the market for insurance? In particular, since each person decides whether to purchase insurance or not, find the price of insurance and who buys it.
In the boom years of the late 1990s, it was often said that rapidly increasing stock prices were responsible for much of the rapid growth of real GDP. Explain how this could be true, using aggregate demand and aggregate supply analysis.
The Federal Reserve has just purchased $100 million in Treasury bills from commercial banks. b. If the public holds a fixed amount of currency (so that all loans create an equal amount of deposits in the banking system), the minimum reserve ratio ..
Determine which of the following refers to a relatively high correlation among independent variables of a regression equation?
Write the function for the indifference curve and graph it when U=10 and U = 20. b) Write the function for the budget constraint and graph it.c) What are the utility maximizing amounts of X1 and x2 given the budget constraint? d) Would your answer..
Compute the elasticity for each variable and briefly comment on what that data gives you in each case.
a consumer is currently purchasing three pairs of jeans and five T-shirts per year. The price of jeans is $30, and T-shirts cost $10. At the current rate of consumption, the marginal utility of jeans is 60, and the marginal utility of T-shirts is ..
Consider 2 countries, Avataria and Twilightia, which can be described by the Solow model. Avataria has a capital-labor ratio that is initially twice as big as that of Twilightia, but neither country is yet in a steady state. Both countries have th..
Agri-Beef Inc. operates cattle feed lots in several midwestern states. The company wishes to estimate the average daily weight gain of cattle on their lots. To do this a simple random sample of cattle is taken and the daily weight gain is recorde..
For what values of a is he risk averse, risk neutral, and risk loving? From now on, assume that a = 1/2. Johnny owns a house that would cost $100,000 to replace should it ever be destroyed by fire.
The information in the table given below are the results of a random sample of current home sales in your neighborhood that your boss has asked you to use to estimate relationship in selling price of house and number of square feet in it.
Amos McCoy is currently raising corn on his 100 acre farm and earning an accounting profit of $100 per acre. However, if he raised soybeans, he could earn $200 per acre. Is he currently earning an economic profit Why or why not
In each case, draw a budget line that shows her available choices, and indicate her best choice by adding indifference curves. Assume that Jane only cares about the number of peanuts, and not about the size of the bag.
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