5. Best Buy offers a protection plan for new smartphones at $195. The absolutely

Question

5. Best Buy offers a protection plan for new smartphones at $195. The absolutely most expensive iPhone you can buy right now is $849. Assume for a moment you are a very cautious but forgetful person: you would never, ever drop or damage your phone, but you might lose it. How likely must you be to lose your phone for $195 to be an actuarially fair price for mobile phone insurance? (Hint: you're solving for p, the probability of losing your phone. Not losing your phone, therefore, happens 1-p percent of the time)

6. If your demand of some good x is X= I/ Px+Py

a) is X a normal or inferior good? Show how you know.

b) is good Y a substitute or complement for good X? Show how you know?

Explanation / Answer

Answer 5. Please provide the utility functions and the probability of loosing a phone.

Answer 6. X= I/ Px + Py

(A) 'X' is a normal good, as the price of x increases, the demand for x decreases and As the income increases, the demand for x also increases.

(B) X is a complementary good, if the price of y increases, the demand for x decreases.

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