Now consider a different insurance company that does not have the inclination to tailor contracts specifically to individuals. Instead, it will offer a standard contract with the premium r= $100 and payout q=$500 to anyone who will purchase it.

a) Peter has health-state income IH = $500 and sick-state income Is = $0. He has probability of illness p = 0.1. is the standard contract far and/or full for Peter? If he ends up getting sick, what will his final income be? and also graph the policy and label the locations and values of I_H , I_S , E(I), I_H , I_S

b) Tim has IH = $500 and Is = $0, but a probability of illness p = 0.2, higher than Peters. Is the standard contract fair and/or full for Tim? How does purchasing the standard contract affect Tims expected income? and also graph the policy and label the locations and values of I_H , I_S , E(I), I_H , I_S