Question 1 evidence of Full insurance occurs when a. r > pq b. r = pq c. q = (IH

Question

Question 1 evidence of Full insurance occurs when a. r > pq b. r = pq c. q = (IH - IS) d. q > (IH - IS)

Question 2 Partial and unfair insurance implies: a. q > (IH - IS) b. q = (IH - IS) c. q < (IH - IS) d. r = pq e. r < pq Question 3 Full and fair insurance implies a. I'H = E(I) b. I'S = E(I) c. IH = E(I) d. IS = E(I) e. a and b

Question 4 For fair insurance, "r" is a. the difference between IH and E(I) b. greater than p x q c. less than p x q d. the difference between IS and E(I)

Question 5 Points on the straight line that connects IS and IH on the actual utility curve refer to utilities a. with full insurance b. with partial insurance c. with no insurance d. none of the above

Question 6 Which of the following is/are possible? a. utility from full and fair insurance higher than utility from full and unfair insurance b. utility from full and fair insurance less than utility from full and unfair insurance c. utility from full and fair insurance equal to utility from full and unfair insurance d. a and c

Question 7 Which of the following is/are possible? a. utility from full and fair insurance higher than utility from partial and fair insurance b. utility from full and fair insurance equal to utility from partial and fair insurance c. utility from full and fair insurance less than utility from partial and fair insurance d. a and b

Question 8 Given p = 10% q = $80 r = $50 calculate the expected profits of the insurance company. a. - $22 b. $42 c. $32 d. $48 e. none of the above

Question 9 How do you describe the policy in number 8? a. fair insurance b. unfair insurance c. full and fair insurance d. not enough information

Question 10 In addition to what is given in number 8 assume IS = $800. Assuming full insurance what is the value of IH ? a. $750 b. $880 c. $830 d. $872

Question 11 From the numbers in 8 and 10, Solve for E(I): a. $792 b. $872 c. $792 d. none of the above Question 12 Retaining what is given in number 8 except assume that "p" = 62.5% instead of 10%, what kind of insurance policy is this? a. fair insurance b. unfair insurance c. full and unfair insurance d. partial and unfair insurance 3 points

Question 13 With the change in "p" from the previous question, solve for the new E(I). a. $800 b. $1,292 c. $830 d. none of the above

Explanation / Answer

1. Evidence of full insurance occurs when b. r= pq

2. Partial and unfair insurance implies when d.r<pq

3. full and fair insurance implies when I'H = E(I) and I'S = E(I)

4.for fair insurance r is the difference between IS and E(I)

5. with no insurance

6.utility from full and fair insurance higher than utility from full and unfair insurance

7.utility from full and fair insurance higher than utility from partial and fair insurance

8.r-qr = 50-8 = 42

09.Policy is Fair insurance

10.IH= 750.

11.Ei = 792

12.Unfair insurance.

13.1292

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