Request: Please correct only the wrong answers here, and also kindly answer the blank ones.

Problem P811.2.'l 2f2 points {graded} Type II Diabetes is a costly and potentially debilitating disease. The total costs incurred over a lifetime by a person with Type 2 diabetes were recently estimated to be $85,000 - from treating the disease directly, and complications like nerve damage, amputations, and stroke. Consider a simplified model of the market for health insurance, where diabetes is the only future health risk people face. Assume that there are 1,000 people classified as "normal weight" and 1,000 people classified as "overweight." Normal weight people face a 20% chance of developing Type II diabetes in their lifetime, and overweight people a 30% chance. Assume an individual can expect to earn $2,000,000 over the course of their lifetime. Additionally, assume individuals spend all their money on consumption, and u (c) = . Ignore any intertemporal considerations of interest rates, inflation or discount factors, i.e. 'r' = 0. What is the amount, {I}, that each type of individual would be willing to pay for an insurance contract that fully insures them against the lifetime costs of developing diabetes? at: (normal weight) = 17149.06 V 17149.06 3 (overweight) = 25695.39 V 25695.39 Submit You have used 1 of 2 attempts 33\"? Show answer Problem PSi'I.2.2 4}?) points [graded]: Suppose insurance companies may measure the weight of an individual prior to offering them an insurance contract, and price their contract based on the result. Assume the only costs the insurance company faces are payments for medical costs if a person develops diabetes, that insurance companies are risk-neutral, and that the market for providing insurance is perfectly competitive. What prices for insurance contracts will be offered? p (normal weight) = 17000 V Answer: 17000 17000 p (overweight) = 25500 v' Answer: 25500 25500 Explanation Because the market is competitive, we expect price to equal expected cost. We calculate the expected cost (EV) of each type of individual: 3; (normal weight) : EV (normal weight) : 0.2 - 85, 000 : 17, 000. p (overweight) = EV (overweight) = 0.3 - 85, 000 = 25, 500. Who will purchase insurance? {Select each correct answer.] J Normal weight individuals Overweight individuals E] Neither V Explanation Every individual will purchase insurance because the 1WTP found in PS11.2.1 exceeds these prices for both types. What will be the consumer and producer surplus in this market? (Note: If you round off the intermediate results, those rounding errors may be amplified in your final result. We suggest finding exact solutions.) CS: 315000000 8 Answer: 1850000\" (783-40*sqrt(3 83)] 315000000 PS: 0 Explanation Producer surplus will be 0. Consumer surplus is willingness to payr minus price for each person, so GS = 1000 - (w (normal weight} p {normal weight\" + 1000 - {m (overweight) p (overweightD 2:5 3- Smeit You have used 2 of 2 attempts Show answer Problem PSl'l.2.3 3;? points {graded} In order to increase fairness and equity, in 1996 lawmakers in Massachusetts enacted a requirement that insurers utilize "community rating\": they must charge everyone the same price. Consider the impact of this policy change. If all individuals purchase insurance, at what price would the insurer break even? I): 21250 v 21250 Who will purchase insurance at this price? {Select each correct answer.] E] Normal weight individuals Overweight individuals E] Neither \\' Given this, what price will insurers actually set? I): 17000 x 17000 What is happening in this market? 0 Moral hazard Adverse selection 0 Timeinconsistent preferences 0 Loss aversion 0 None of the above V What will be the consumer and producer surplus in this market? CS: 4250000 x 4250000 "U 3: 4250000 x 4250000 Compared to when insurers could weigh people prior to offering them a contract [in PSl'l.2.2), what is the deadweight loss from this policy change? (Enter a positive number for a loss.) DWL = cl 8 Sme" You have used 1 of 2 attempts Save Problem PS11.2.4 4 points possible [graded] In 2006, Governor Mitt Romney enacted "Romneycare." which mandated that all individuals purchase health insurance. Assuming community rating is still in effect, what will be the price of insurance? p: What will be the consumer and producer surplus in this market? CS: PS: Compared to when insurers could measure an individual's weight prior to offering them a contract (in PS'I'I.2.2). what is the deadweight loss from this policy change? [Enter a positive number for a loss.) DWL 2 Submit You have used 0 of 2 attempts save