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.

---

Definitions:

Affective Response

An emotional reaction or response to stimuli, reflecting a person's feelings or emotions.

Appetite Change

A noticeable alteration in the desire to eat, which can include both an increase or decrease in hunger levels.

Isotretinoin

A medication primarily used to treat severe acne, known for its potential to cause serious side effects and hence, subject to strict prescription guidelines.

Acne

A skin condition characterized by the presence of pimples, blackheads, and possibly cysts, often occurring on the face, neck, chest, back, and shoulders.