(Scenario: Health Costs)Use Scenario: Health Costs.When Alan's probability of developing a health problem decreases,holding everything else constant,Alan's expected value of health care costs: Scenario: Health Costs
Alan is hoping for a healthy year,meaning that he would have zero health costs.Given his habits,there is a 40% chance that Alan will develop a health issue resulting in $50,000 in health costs.Assume these are the only two conditions that could exist for Alan in the coming year.
A)increases.
B)decreases.
C)stays constant.
D)increases,decreases,or stays constant.

Question

Quizplus · Accepted Answer

When Alan's probability of developing a health problem decreases, holding everything else constant, his expected value of health care costs decreases. This means that if Alan's probability of developing a health issue decreases, his expected health care costs will decrease as well. Therefore, the best answer is B, decreases.