Table 10-4 Example of the Effects of Moral Hazard
Situation 1
(No Insurance)
Situation 2
(Full Insurance)
Situation 3
(20% Copayment)
Price paid by individual for one unit of care
500
0
100
Units of care demanded
10
30
15
Amount paid by insurance company for care
0
15,000
6,000
Pure premium
3,000
1,200
Expected utility
99.4
98.8
99.6
Based on the probability of getting sick being is only 20% and the data present, please calculate the total cost to the person in each situation.
(1pt)
Please explain the reason for the differing utilities for each as well. (2pts)