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SIPAIA6400_001-002_2025_3 - Microeconomic Analysis for International and Public Affairs Problem Set 8, Individual Portion

Multiple choice

Consider the following data about Angela: IGood  = $100 IBad  = $20 E(I) = $80 CE = $70 Select all correct answers

Options
A.Anglea's loss is equal to $80
B.Angela's expect loss is equal to $20
C.Angela is risk averse
D.Angela will pay at most a premium of $30 for a full insurance policy
E.Full insurance policies with a premium greater than 20 and smaller than 30 will make both Angela and a risk-neutral insurance company better off
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Standard Answer
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Approach Analysis
The problem provides Angela's wealth outcomes and related metrics, from which we can assess each statement. Option 1: 'Angela's loss is equal to $80' — This is not directly supported by the given numbers. We are told I_Good = 100, I_Bad = 20, E(I) = 80, and CE = 70. The loss magnitude between states (the drop from good to bad) is 80, but the statement calls Angela's loss generically 'equal to $80' without specifying which loss is meant. Since the data does not define a single, unambiguous 'loss' value for Angela, this assertion is no......Login to view full explanation

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