Homework answers / question archive / A new drug has been developed that is effective in preventing heart attacks

A new drug has been developed that is effective in preventing heart attacks

Economics

Share With

A new drug has been developed that is effective in preventing heart attacks. Taking the drug reduces the chance of a heart attack to 10%, but the loss associated with the attack increases to $15,000.

a. What is the expected loss?

b. What is the maximum amount this individual is willing to pay for insurance against a heart attack?

c. What is the risk premium?

d. What is the welfare gain from the insurance?