3. Consider an individual with initial wealth W = $1,000 and utility function over money given by u(w) = w. The individual faces loss of L = $800 with probabil- ity . Suppose an insurance is available at price Sp per unit, where one unit of insurance pays the insured $1 if loss occurs and $0 otherwise. (a) What is the fair price for this insurance, and how much insurance will the individual buy at this price? (b) Suppose p= $0.3. How much insurance will the individual buy? (c) Suppose p = $0.3, but now the individual's utility function over money is u(w) = w?. How much insurance will the individual buy? As clarified in the class, assume that the individual cannot insure more than the amount of loss.

3. Consider an individual with initial wealth W = $1,000 and utility function over money given by u(w) = w. The individual faces loss of L = $800 with probabil- ity . Suppose an insurance is available at price Sp per unit, where one unit of insurance pays the insured $1 if loss occurs and $0 otherwise. (a) What is the fair price for this insurance, and how much insurance will the individual buy at this price? (b) Suppose p= $0.3. How much insurance will the individual buy? (c) Suppose p = $0.3, but now the individual's utility function over money is u(w) = w?. How much insurance will the individual buy? As clarified in the class, assume that the individual cannot insure more than the amount of loss.

Name: 3. Consider an individual with initial wealth W = $1,000 and utility
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Description: 3. Consider an individual with initial wealth W = $1,000 and utility function overmoney given by u(w) = w}. The individual faces loss of L = $800 with probabil-ity . Suppose an insurance is available at price $p per unit, where one unit ofinsurance

Intermediate Algebra

19th Edition

ISBN:9780998625720

Author:Lynn Marecek

Publisher:Lynn Marecek

Chapter12: Sequences, Series And Binomial Theorem

Section12.3: Geometric Sequences And Series

Problem 12.58TI: What is the total effect on the economy of a government tax rebate of $500 to each household in...

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