Consider a consumer who buys insurance. The consumer will have an income of ?=100. She can consume all of her income in case of no accident, while she can consume $36 in case of accident. The probability of accident is 50%. At the price (premium) of ?, the consumer can buy an insurance in which she can get ? in case of accident. Let define ?1 as the final consumption in case of accident and ?2 in case of no accident. A. The consumer's utility from final consumption is ?(??)=???, where ?=1,2. Suppose that the consumer can buy an insurance with ?=64. What is the maximum amount the consumer is willing to pay for this insurance? Illustrate your answer using a graph. If the consumer's utility from final consumption is now ?(??)=??, what is the maximum amount the consumer is willing to pay for the insurance with ?=64? Compare to the case where?(??)=???, does the consumer's willingness to pay for the insurance increase or decrease? Explain your answer. B. The consumer's utility from final consumption is ?(??)=2???. Suppose that an insurance company sells an insurance in which the company gets $4 profit. Would the consumer buy this insurance? If so, solve ? and ? for this insurance, and explain why the consumer buys such an insurance. Illustrate it using a graph.

Consider a consumer who buys insurance. The consumer will have an income of m = 100. She can consume all of her income in case of no accident, while she can consume $36 in case of accident. The probability of accident is 50%. At the price (premium) of p, the consumer can buy an insurance in which she can get S in case of accident. Let dene C1 as the nal consumption in case of accident and C2 in case ofno accident. A. The consumer's utility from nal consumption is u(ct) = Jet. where t = 1, 2. Suppose that the consumer can buy an insurance with s = 64. What is the maximum amount the consumer is willing to pay for this insurance? Illustrate your answer using a graph. If the consumer's utility from nal consumption is now uCCt) = Ct, what is the maximum amount the consumer is willing to pay for the insurance with S = 64'? Compare to the case Where u(ct) = 1N: , does the consumer's willingness to pay for the insurance increase or decrease? Explain your answer. B. The consumer's utility from nal consumption is u(ct) = 21/Ct. Suppose that an insurance company sells an insurance in which the company gets $4 prot. Would the consumer buy this insurance? If so, solve p and s for this insurance, and explain why the consumer buys such an insurance. Illustrate it using a graph