1. Assume an insurance company knows that expected health expenditures are distributed uniformly over the interval [1000, 9000], but they are unable to identify the expected health expenditure of any specificindividual and must charge a uniform premium.Individuals are willing to pay 1.25 times their expected expendituresforinsurance coverage.

• Canthemarket possiblyfunctionatapremium of$5000?
• Canthemarket possiblyfunctionatapremium of$8000?
• What do your answers in parts (a) and (b) tell us about the consequences of adverse selection in health insurance markets?

1. True/False.Evaluate whether the following statements are true or false.Make sure to explain yourreasoning

• From the Preston Curve, we can conclude that income plays no role in health withinhigher-incomecountries.
• If Todd is better educated than his twin brother Rob, Victor Fuchs would expect Rob to be in betterhealththanTodd.
• The potential for adverse selection in health insurance markets is larger when future health care needsaremorepredictable.