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Consider figure 2. In the good state, the income level is D. In the bad state, the income level is A. Identify the actuarially fair
Consider figure 2. In the good state, the income level is D. In the bad state, the income level is A. Identify the actuarially fair premium and the risk premium. What is the utility level with an actuarially fair premium? What is the utility level with the actuarially fair premium? What is the utility level with the risk premium added? Suppose health care reform mandates the purchase of insurance and the best premium this individual can get is > BD. Is there welfare loss? Why? 
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