A) a hangnail B) a broken arm C) a bad hair day D) viral meningitis The Organiza

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A) a hangnail B) a broken arm C) a bad hair day D) viral meningitis
The Organization of Health Insurance Markets when profits are zero, or normal, will entry and exit cease. In this model, the insurance carriers collect money during the year and pay some of it out. In good years, carriers pay out less than col- lected; in bad years, they pay out more. Economic analysis suggests that the good (and bad) years will be random. Systematically good (bad) years suggest excess profits (losses), and the probability of entry into (exit from) the industry by other firms. Moral hazard can lead firms to offer certain types of coverage and not others. In particular, firms have often shown themselves to be reluctant to cover conditions accompanied by price-elastic demands for services. Impacts of Loading Costs Insurance firms incur costs of doing business that are added to the claims payouts. These loading costs are largely related to the numbers and types of customers and claims processed. Even in perfect competition, these costs must be passed on to consumers, or else the insurers will not be able to cover all costs and will be forced to leave the market. The incidence of these costs suggests that insurers will shy away from covering events that are almost certain to occur, or those that seldom occur. Consider consumers who behave as though they have a utility of wealth (W) function exhibit- ing diminishing marginal utility of wealth. Figure 1A relates total utility to total wealth and Figure IB looks at corresponding marginal gains and marginal costs related to various actions. In Figure 1A, Sara has $20,000 in wealth yielding utility at point A, with various possibilities of losses up to $10.000, or point B. The amount Sara would be willing to pay over the actuarially fair amount (also interpreted as Sara's consumer surplus) is shown by the horizontal distance between the expect ed utility line and the (curved) utility function, measured in dollars. For example, at point F this hor- izontal distance is FG. On inspection we note that the horizontal distance between the expected A. Expected Total Utility Utility under certainty Expected utility under risk Utility Wealth (in S).W $10,000 $20,000 B. Marginal Gains and Margihal Costs Consumer's expected marginal gain (willingness to pay), insurer's marginal cost (both in S) Consumer's expected marginal gain for heart attack insurance Insurer's marginal cost D: Consumers expected marginal gain for hangnail insurance wealth(in $),W $10,000 $20,000 Sara will always file a claim Sara will never file a claim FIGURE 1 Impacts of Loading Costs on Availability of Insurance

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i did not get the probability values to calculate

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