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Assume there is one insurance plan. Consumers decide whether to enroll in this insurance plan or remain uninsured. Consumers are heterogeneous in how much they value insurance and how costly they are to insure. Assume that a consumer of type θ gets utility equal to VI (θ) = θ from insurance.The costs of providing this consumer with insurance are CI(θ)= α + 2βθ where -0.5 < β < 0.5 and -β < α < 1-2β . The utility and costs of remaining uninsured are VU (θ) = CU (θ) = 0. θ is distributed uniformly between zero and one.
a) How do the allocations that emerge in competive equilibrium compare to the social planners allocation when β = 0, β < 0, and β > 0? Why might β be less than zero (θ can represent consumer characteristics other than unobserved health)? Explain why when β = 0, the competitive equilibrium is efficient.
b) Assume now that β > 0. The government wants to subsidize the insurance plan to induce the efficient allocation. At what level must the government set this subsidy?
You are interviewing three people for one sales job. On the basis of your experience and insight, you believe Jane can sell 600 units a day, Joe can sell 450 units a day, and Joan can sell 400 units a day. The daily salary each person is asking is..
A U.S. firm is considering moving its production to Mexico. Its estimated production function is q = L 0.5 K 0.5 . The U.S. factor prices are w = r = 10. The Mexican factor prices are w* = 5, r* = 10. What is the optimal input bundle ( L,K..
Assume tax rate on labor income t=.6. Find the equation of the labor demand curve. Calculate equilibrium levels of the real wage and employment, the level of full employment output, and the total after tax wage income of workers.
A company would like to have a bond offering to raise $100M for the construction of a new plant. By the time the bond goes to market, they receive only $93M. The bond is a 10 year offering with quarterly payments. The annual percentage interest ra..
What term would economists use to describe what happened in year 3 Expansion OR Recession If the growth rate in year 3 had been a positive 5 percent rather than a negative 2 percent, what would have been the average growth rate
To simplify the computations, suppose the cost of production is zero for both products. You have estimated that there are three types of customers, I, II, and III, who buy the products of the firm. There are 2,000 customers of each type, and they ..
Calculate elasticity of demand at prices $8, $5, and $3. Price Quantity Purchased $10 1 $9 2 $8 3 $7 4 $6 5$5 6 $4 7 $3 8 $2 9 $1 10
Assume an earning rate of 6% per year compounded monthly on your investments. How much must you place into your retirement plan monthly starting at the end of next month (month 1) and ending one month prior to the commencement of the retirement be..
data from the land of milk and honey: year price of milk quantity of milk price of honey quantity of honey 2010 $1 100 quarts $2 50 quarts 2011 $1 200 quarts $2 100 quarts
A 12-year-old boy, while crossing a bridge over the defendant's trolley tracks, swung an 8-foot-long wire over the bridge. The wire touched the defendant's uninsulated trolley wire, which ran over the tracks of his trolley and beneath the bridge
1. In the beginning, 74 firms are in this competitive market. All firms are equal. (a) What is the total market supply curve when 74 such firms are producing at the same time (b) What is the equilibrium price and quantity in this case (c) What is the..
Assume the players are monopolists, but the teams are competitive in the labor market. Calculate the marginal revenue product of labor (MRPL) and find the equilibrium wage and quantity of labor.Find the equilibrium wage and quantity of labor.
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