Ralph is choosing whether to purchase health insurance Here are the features that define his situation He currently has $20,000 in initial wealth and faces a 2 chance of a serious illness that will cost $8,000 to cure (He therefore simultaneously faces a 98 chance that he wont face harm ) He has the option to purchase an insurance policy for the price of $1,000 If he purchases insurance and gets ill, his insurance company will compensate him for the $8,000 cost of the cure His utility function for money is U(M) M He has the option to not purchase insurance, but he must pay a fine of $X if he chooses to go uninsured Set up the equation (but do not solve it) to find the amount of the fine (X) that makes him indifferent between purchasing insurance and going uninsured Briefly explain why an insurance companys statistical discrimination could be beneficial for you even when you are part of a group that has to pay more because of statistical discrimination True or false, and explain According to Seabright, because of information asymmetries between consumers and sellers, consumers have to put in a lot of time and effort to ensure that sellers are trustworthy

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Posted on Oct 06, 2024

Ralph is choosing whether to purchase health insurance. Here are the features that define his situation: He currently has $20,000 in initial wealth and faces

Ralph is choosing whether to purchase health insurance. Here are the features that define his situation:

He currently has $20,000 in initial wealth and faces a 2% chance of a serious illness that will cost $8,000 to cure. (He therefore simultaneously faces a 98% chance that he wont face harm.)
He has the option to purchase an insurance policy for the price of $1,000. If he purchases insurance and gets ill, his insurance company will compensate him for the $8,000 cost of the cure.
His utility function for money is U(M) = M.
He has the option to not purchase insurance, but he must pay a fine of $X if he chooses to go uninsured.

Set up the equation (but do not solve it) to find the amount of the fine (X) that makes him indifferent between purchasing insurance and going uninsured.

Briefly explain why an insurance companys statistical discrimination could be beneficial for you even when you are part of a group that has to pay more because of statistical discrimination.

True or false, and explain: According to Seabright, because of information asymmetries between consumers and sellers, consumers have to put in a lot of time and effort to ensure that sellers are trustworthy.