Suppose you are asked to use the standard time trade-off approach to measuring quality of life and are given the following information. An individual is faced with living the remaining 10 years of her life suffering from severe osteoporosis. She reveals that she would be willing to give up four of those years to live the remaining six in perfect health. What is the utility of one year in the chronic health state relative to perfect health?
a. 4
b. 6
c. 0.4
d. 0.6
e. There is not enough information to determine the utility of life in this case
Question 2
Which statement best characterizes the second-best policy offered by a monopoly insurer when it can't observe the consumer's risk?
a. It is a single contract offering partial insurance at an intermediate price such that all types are served.
b. It is a menu of contracts providing full insurance for the least risky types and partial insurance for higher risks.
c. It is a menu of contracts providing full insurance for the riskiest type and partial insurance at lower prices for lower risks.
d. The market breaks down since the monopolist cannot design contracts without observing each consumer's risk.
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