We discussed the demand for insurance. In the model we explored in class utility is a function of income (I). Assume that the individual we consider has a utility function of the following form:U(I)=I14

. Assume the individual has a 0.50% chance of ending up sick. Without insurance, the individual will receive IS= $4 if they wind up in the sick state and IH= $113 if they wind up in the healthy state. The model is as otherwise described in class.

For parts a to e, write down your answers and turn them in as"handwritten work". For part d, write down a numerical answer (decimal format) in the space below.

a.Is the individual is risk averse? How do you know?

b. Graph the utility function. Label each axis and the utility function.

c. What is the expected income for the individual? (Write down an answer in your handwritten work and graph it in the appropriate place in the diagram in part b.)

d. What is the individual's utility of expected income? (Write down an answer below, using decimal format,and in your handwritten work and graph it in the appropriate place in the diagram in part b.)

e. What is the value of the individual's expected utility?