EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Chapter 4A.3, Problem 1.2MQ
To determine
Analyzing risk neutral behavior .
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HEALTH ECONOMICS QUESTION:
IN THE GRAPH BELOW, HOW WOULD THE EQUILIBRIUM CHANGE IF THE CONSUMER BECAME WEALTHY, PLEASE INSERT WHERE THIS CURVE WOULD BE IN THE GRAPH.
Show how a consumer would choose between medical care and health(y) behavior activities using the graphical representation of the consumer choice model (assume that “amounts” of healthy behavior have “costs” or prices).
The lecture mentions that diminishing marginal utility applies to the consumption of money as well as the consumption of certain food. Can you give another example where diminishing marginal utility applies? Can you think of any example where diminishing marginal utility does not apply?
From utility theory, the demand for insurance depends on the level of risk aversion (i.e. how much you hate uncertainty), the cost of insurance (i.e. if it is within your willingness to pay), as well as wealth. Can you think of anything else that affects demand for insurance?
One of the predictions of prospect theory is that we tend to be overly concerned with relatively small risk. Can you think of any example (besides those given in the lecture) that either speaks to this or is an exception?
Chapter 4A Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
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