QUESTION 1 evidence of Full insurance occurs when r > pq r = pq q = (I H - I S )

Question

QUESTION 1

evidence of Full insurance occurs when

r > pq

r = pq

q = (IH - IS)

q > (IH - IS)

3 points   

QUESTION 2

Partial and unfair insurance implies:

q = (IH - IS)

r = pq

q > (IH - IS)

q < (IH - IS)

r < pq

3 points   

QUESTION 3

Full and fair insurance implies

I'H = E(I)

I'S = E(I)

IH = E(I)

IS = E(I)

a and b

3 points   

QUESTION 4

Points on the straight line that connects IS and IH on the actual utility curve refer to utilities  ...

with full insurance

with partial insurance

with no insurance

none of the above

3 points   

QUESTION 5

Which of the following is possible?

utility from full and fair insurance higher than

utility from full and unfair insurance

utility from full and fair insurance lower than

utility from full and unfair insurance

utility from full and fair insurance equal to

utility from full and unfair insurance

a and c

3 points   

QUESTION 6

Which of the following is/are possible?

.

utility from full and fair insurance higher than

utility from partial and fair insurance

.

utility from full and fair insurance less than

utility from partial and fair insurance

.

utility from full and fair insurance equal to

utility from partial and fair insurance

a and

3 points   

QUESTION 7

For the insurer, which represents earnings from sick individuals?

(1 - p ) x r

p x r

p (r - q)

p (q - r)

3 points   

QUESTION 8

For the insurer, which represents earnings from non-sick individuals?

p x q

p x r

(1 - p) x r

q x (IH - IS)

3 points   

QUESTION 9

Given

p = 10%

q = $80

r = $50

calculate the expected profits of the insurance company.

$22

$42

$32

none of the above

3 points   

QUESTION 10

The policy in the previous question can be described as

fair insurance

unfair insurance

full insurance

not enough information

3 points   

QUESTION 11

In addition to what is given assume IS = $800.

Assuming full insurance what is the value of IH ?

$750

$880

$830

$872

3 points (Extra Credit)   

QUESTION 12

Given the information in the last 3 problems, solve for E(I):

$792

$872

$842

none

a.

r > pq

b.

r = pq

c.

q = (IH - IS)

d.

q > (IH - IS)

Explanation / Answer

1. The correct answer is c. Full insurance contract is an insurance contract that equalizes income in all states. That is, I'H = I'S, which implies:

IH - r = IS - r + q
IH = IS + q
q = IH - IS

2. Unfair insurance implies that premium r is more than fair premium pq. And Parital insurance implies I'H > I'S, which implies:
IH - r > IS - r + q
IH > IS + q
q < IH - IS

So the correct answer is d.

3. Full insurance implies E[I] = I'H = I'S. So the correct answer is e.

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