QUESTION 7 Susan is considering whether to buy health insurance. Her utility is given by, where I is her yearly income equal to $81,000.

QUESTION 7

1. Susan is considering whether to buy health insurance. Her utility is given by  , where I is her yearly income equal to $81,000. However, there is a 3% chance that she'll fall sick with a flu virus, which will cost her $10,000.
2. What is the expected utility of not buying any insurance? (round your answer to the nearest two decimal places)

QUESTION 8

1. Susan is considering whether to buy health insurance. Her utility is given by  , where I is her yearly income equal to $81,000. However, there is a 3% chance that she'll fall sick with a flu virus, which will cost her $10,000.
2. What is the actuarially fair premium for full health insurance in this case?

QUESTION 9

1. Susan is considering whether to buy health insurance. Her utility is given by  , where I is her yearly income equal to $81,000. However, there is a 3% chance that she'll fall sick with a flu virus, which will cost her $10,000.
2. What is her expected utility from buying full and fair insurance? (round to the nearest 2 decimals places)

QUESTION 10

1. Susan is considering whether to buy health insurance. Her utility is given by  , where I is her yearly income equal to $81,000. However, there is a 3% chance that she'll fall sick with a flu virus, which will cost her $10,000.
2. Assume that the flu is the only likely health expenditure that Susan would face. If the cost of the flu shot is $500 and the flu shot reduces the probability that she gets the flu to 1%, should she choose the insurance or the flu shot? Fully justify your answer by showing your calculations.