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Exam 7: The Demand for Health Insurance

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Question 1

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It is flu season.When you are healthy,you will earn $144 a day,but if you become ill,you will only earn $100 a day.There is a 25% chance you will get the flu.If your utility function is equal to where W is equal to wealth,then what is your expected utility of catching the flu?

A) $133
B) $111
C) $11.5
D) $10.5

E) A) and B)
F) A) and C)

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Question 2

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Suppose there are two types of people in an insurance market: high and low risks.The high-risk person is sick 10% of the time and the low-risk person is sick 5% of the time.The probability that any individual is high risk is 40%.Upon getting sick,an individual loses $10,000 in medical expenses.What are the actuarially fair premiums for the types?

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The actuarially fair premiums are equiva...

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Question 3

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When an insurer promises to pay 30% of treatment costs,this amount is known as a

Insurance coverage is sold at

Suppose the inverse demand for physician office visits is P = 1000 - 20Q.Now suppose an insurance policy provides a co-insurance rate of 50%.Graph the new demand function with health insurance.

A public option in the health insurance market has been proposed as a remedy to the increasing cost of health care.Critics state that a public option requiring all citizens to purchase health insurance would decrease health insurance premiums on average by mitigating

Suppose there are two types of people in an insurance market: high and low risks.The high-risk person is sick 10% of the time and the low-risk person is sick 5% of the time.The probability of any individual being high risk is 40%.Upon getting sick,an individual loses $10,000 in medical expenses.If the insurer cannot distinguish between the two types,but the two individuals know their types,what will be the equilibrium premium?

Which of the following policies limits the extent of moral hazard in the health insurance market?

For a risk-averse consumer

As it applies to health insurance,the adverse selection problem is the tendency for:

Purchasing additional medical services because you are covered by health insurance is an illustration of

Lucy Ramirez has $22,500 in income.After a recent trip to Cuba,she discovers that there is a 25% chance of acquiring Cubanitis.The disease is 100% curable but requires the Fidelonomy procedure (at a cost of $12,500) .The Kuba-Kuba Insurance Company offers a policy that will cover the Fidelonomy.The premium they charge is $4,000.Of this premium,the pure premium is __________ and the loading fee is _______.

In the figure below: By how much do expenditures increase with insurance? What is the deadweight loss to society for insurance?

Suppose there are two types of people in an insurance market: high and low risks.The high-risk person is sick 10% of the time and the low-risk person is sick 5% of the time.The probability of any individual being high risk is 40%.Upon getting sick,an individual loses $10,000 in medical expenses.What if the individuals do not know their type?

In the figure above, the change in insurance coverage causes a consumer's private benefits to increase (area under the demand curve) by:

Which of the following types of reimbursement would hospitals support?

It is flu season,and you are trying to decide if you should get a flu shot.When you are healthy,you earn $144 a day,but if you become ill,you will only earn $100 a day.There is a 25% chance you will get the flu without a flu shot.If you do receive the flu shot,then you definitely will not get the flu.What is the actuarially fair price for the flu shot given this information?

In the figure, the change in insurance coverage causes a social welfare loss equal to:

Use the following figure for questions 8 through 10 Suppose that Q₀ = 10 office visits,Q₁ = 20 office visits,P₀ = 10,and P₁ = 2.The increased expenditures due to insurance are:

Calculate the expected return (or expected winnings) in a game where a person wins $1 with the probability of 1/3 ,$5 with the probability of1/6 ,and $0 with the probability of 1/2 .