1. Most insurance companies charge a price per dollar of insurance which is higher than the probability of the event they are insuring. Can you name and discuss at least two reasons this could be the case? Explain the consequences of this behavior for the demand for insurance even among risk averse individuals.
2. Consider an individual with a Utility function U= w4. Show with an example of a lottery and proper calculations, as those done in class, that this utility function does not express risk aversion.

Please explain as detail as possible