2. Joe is currently unemployed and without health insurance coverage. Obtain the utility (U) of the interest income from your savings (Y) according to the following function: U = 5(Y1/2)

Joe currently earns about $40,000 in interest income per year. He realizes that there is about a 5 percent chance that he could have a heart attack. The cost of treatment will be around $20,000 if a heart attack occurs.

Calculate Joe's expected level of utility without any health insurance coverage.

Calculate Joe's expected income without any insurance coverage.

Suppose Joe must pay a premium of $1,500 for health insurance coverage with ACME Insurance. Would you buy health insurance? Why or why not?

Now suppose the government passes a law allowing everyone, not just those who are self-employed or employed, to have their entire insurance premium tax-free. Joe is in the 33 percent tax bracket. Would you purchase health insurance at a premium cost of $1,500? Why or why not? 

What implications can be drawn from the analysis?