The following several questions deal with adverse selection and will be based on the table below. The table shows a population of 50 people and the distribution of their expected health care spending. People only want to buy health insurance if it costs less than they expect to spend; otherwise they'll just go uninsured and pay their own way.

# people Expected health care spending 10 $100 10 $300 10 $500 10 $700 10 $900

An insurance company offers full health insurance plans for a premium of $200. How many people enroll in year 1?(Remember to think about what you know of adverse selection.Which people in the table want insurance the most?Which ones want it the least? That informs how you approach this question.)

In year 2, the insurance company sets the premium equal to the average of the expected costs of the people who were covered in year 1. What is the premium?

(Don't show $ sign)

Show your work (how'd you get that number?)

Based on the year 2premium you calculated,how many people sign up for insurance?

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In year 3,the insurers sets the premium equal to the average of the costs from the people who were insured in year 2. What is the premium?

(Don't show $ sign)

Show your work (how'd you get that number?)

Based on the year 3 premium you calculated, how many people sign up for insurance?

Show your work (how'd you get that number?)