Public Economics please answer accordingly. Explain the procedure

Question 3 _ ;- ---- | Suppose there are two types of people, high risk (H) and low risk (L) with utility function UL?) = :35. Each has income (=consumption) of $100. The high risk people are 10% of the population and have a 75% chance of getting cancer in which case their income would be zero. The lovxr risk people are the reInainder of the population and have a 25% chance of getting cancer and hence zero income. The private insurance industry is perfectly competitive. (a) Suppose private insurers are able to distinguish the two types. 1What market price would emerge for each risk type? Hoer much insurance would each type purchase? (b) Suppose private insurers cannot distinguish between types and attempt to price according to average risk. What is the premium per dollar of insurance for average risk? 1What problem do you foresee? (c) Insurers are afraid the government will take over the industry and decide to price in a different way. Mindful of the social consequences they will price so that the high risk is fully insured. Mat condition must be placed on the lowrisk for this to be an equilibrium? (d) \\Vhat is the expected utility of the lowrisk given the condition you wrote for part (c)? (e) Lowrisk people are not satised with this outcome and they convince the government to mandate pooled insurance for everyone at the actuarially fair rate (as in part [bj]. Everyone will have the same income. Compute this level of income. (f) Compute expected utility for the each risk type. Is this greater or less than the utility level for each group in the separating equilibrium above? Explain why for each group