Use the Following to Answer Questions

question 3

Multiple Choice

Use the following to answer questions :
Scenario: Choosing Insurance
The Ramirez family owns three cars and is considering buying insurance to cover the cost of repairs.They face two possible states: in state 1,their cars need no repairs and their income available for purchasing other goods and services is $50 000;in state 2,their cars need $10 000 worth of repairs and their income available for purchasing other goods and services is reduced to $40 000.The probability of repairs is 10%,while the probability of no repairs is 90%.
-(Scenario: Choosing Insurance) Use Scenario: Choosing Insurance.For $900,the Ramirez family can buy insurance that will cover the full cost of repairs.If family members are risk-averse and maximize their expected utility,they will:

• A) buy the insurance.
• B) be indifferent between buying and not buying the insurance since their expected income for purchasing other goods and services is $49 100,regardless of what they do.
• C) not buy the insurance,since buying it does not increase their expected income for purchasing other goods and services.
• D) self-insure.

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Definitions:

Korsakoff's Syndrome

A chronic memory disorder caused by severe deficiency of thiamine (vitamin B1), often associated with alcohol misuse, characterized by memory loss and fabrication of events.

General Anxiety Disorder

A psychological disorder characterized by excessive, uncontrollable worry about everyday things that is disproportionate to the actual source of worry.

Amnesias

A condition characterized by a significant memory loss that is not caused by normal forgetting.

Dissociation

A psychological condition in which there is a disconnection or lack of continuity between thoughts, memories, surroundings, actions, and identity.