, Consider an individual whose utility function over income I is U(I), where U is increasing smoothly
in I and is concave (in other words, our basic assumptions throughout this chapter). Let IS = 0 be
this persons income if he is sick, let IH > 0 be his income if he is healthy, let p be his probability of
being sick, let E[I] be expected income, and let E[U] be his expected utility when he has no
insurance. a Write down algebraic expressions for both E[I] and E[U] in terms of the other
parameters of the model. b Consider a full insurance product that guarantees this individual E[I].
Create a diagram in UI space. Draw the individuals utility curve and the lines represent- ing IS, IH ,
and E[I]. Then draw and label a line segment that corresponds to the utility gain, U, from buying
this insurance product. Draw and label another line segment, M, which corresponds to the
consumer surplus from the purchase of insurance (that is, the monetary value of the utility gain
from buying insurance). c Derive an algeb.
Consider an individual whose utility function over income .pdf
1. , Consider an individual whose utility function over income I is U(I), where U is increasing smoothly
in I and is concave (in other words, our basic assumptions throughout this chapter). Let IS = 0 be
this persons income if he is sick, let IH > 0 be his income if he is healthy, let p be his probability of
being sick, let E[I] be expected income, and let E[U] be his expected utility when he has no
insurance. a Write down algebraic expressions for both E[I] and E[U] in terms of the other
parameters of the model. b Consider a full insurance product that guarantees this individual E[I].
Create a diagram in UI space. Draw the individuals utility curve and the lines represent- ing IS, IH ,
and E[I]. Then draw and label a line segment that corresponds to the utility gain, U, from buying
this insurance product. Draw and label another line segment, M, which corresponds to the
consumer surplus from the purchase of insurance (that is, the monetary value of the utility gain
from buying insurance). c Derive an algeb
![, Consider an individual whose utility function over income I is U(I), where U is increasing smoothly
in I and is concave (in other words, our basic assumptions throughout this chapter). Let IS = 0 be
this persons income if he is sick, let IH > 0 be his income if he is healthy, let p be his probability of
being sick, let E[I] be expected income, and let E[U] be his expected utility when he has no
insurance. a Write down algebraic expressions for both E[I] and E[U] in terms of the other
parameters of the model. b Consider a full insurance product that guarantees this individual E[I].
Create a diagram in UI space. Draw the individuals utility curve and the lines represent- ing IS, IH ,
and E[I]. Then draw and label a line segment that corresponds to the utility gain, U, from buying
this insurance product. Draw and label another line segment, M, which corresponds to the
consumer surplus from the purchase of insurance (that is, the monetary value of the utility gain
from buying insurance). c Derive an algeb](https://image.slidesharecdn.com/consideranindividualwhoseutilityfunctionoverincome-230318130820-752567c5/85/Consider-an-individual-whose-utility-function-over-income-pdf-1-320.jpg)
