Suppose that Mr. H who lives in Northern Saskatchewan is an expected utility maximizer. His utility (U) which is a function of income (Y) is U(Y) = 175 + Y0.5 . Assume that his initial income is $1,100, and the probability that he can be sick is 15%. He has an option to buy health insurance with a premium of $200. The insurance provides full coverage for all treatment costs with no deductibles or copayments

a. Calculate his expected utility if he buys the health insurance defined above. Show your work. (2 points)

b. Now assume that in the event of illness, the cost of treatment is unknown to Mr. H. He has an option to buy health insurance as described above. Given this information, calculate the minimum treatment cost at which Mr. H chooses to buy the health insurance? (3 points)

Suppose that individual Zzs utility function, which only depends on income (Y), is defined as U(Y) = 14 + 3Y0.5 ,where Y stands for her/his income. Based on this information, is individual Zz risk averse, risk neutral or risk lover? Explain and show your reasoning.

Suppose that Mrs. John is an expected utility maximizer. Her utility (U) which is a function of income(Y) is U (Y) =100 + 0.7 squarroot of Y Assume that her initial income is $10,000

Mrs. John knows that she has history of diabetes in her family, and she is aware that family health history is an important risk factor for developing diabetes. She has full coverage for physician and hospital services, but has no insurance coverage for prescription drugs. She discusses her risk of developing diabetes in the future as well as the cost of treatment in the event of illness with her physician.

The physician informs her that the annual prescription drug cost for diabetes treatment is $9,900. However, the risk of developing diabetes is uncertain. Mrs. John knows that she can buy annual health insurance coverage for prescription drugs for diabetes with a premium of $3600. The insurance provides full coverage for prescription drugs.

For her to buy this health insurance for prescription drugs, what is the minimum probability (lowest risk) of developing diabetes for her? Explain and show your work. (6 points)