Answer to Question #91600 in Microeconomics for neeraj

Question

Aria is planning to travel to a country where there is some risk of contracting malaria. The market price for the medication that prevents malaria is $400 (the preventative medicine is not covered by insurance). It would take her 2 hours to visit her doctor and get the prescription filled. The opportunity cost of her time is $50/ hour.

If she contracts malaria we assume that she will be sick for two weeks and unable to work. Expenses for medication, doctors’ visits, and lab tests to treat the malaria will be $1500. She will lose wages and benefits of $1000 for each week she is away from work. Assume the cost of the pain and suffering is $2000.

Aria believes that her chance of getting malaria without preventative medicine is about one in 10.

What is the maximum price that Aria would pay if insurance covered the full cost of treatment if she got malaria?

Answer 1

The cost of medical expenses = $1500

Wages lost= $1000 X 2 (sick for two weeks)

Cost of pain and suffering= $2000

The maximum price that Aria would pay if insurance covered the full cost of treatment if she got malaria is:

($1000X2)+ $2000 = $4000

The insurance will only cover for the medical expenses which is $1500