1. Suppose individuals are willing to pay $500 for an airbag that reduces the probability of being killed in a car accident by 0.0001. Calculate the value of a statistical life using the willingness to pay approach.
2. Suppose Joe plans to work for another 5 years. Joe earns $50,000 per year. Using the human capital approach, calculate the value of Joe’s life assuming a 3% discount rate.
3. Suppose your hospital is considering investing in a new piece of equipment that will generate $100,000 of revenue each year for 5 years. The price of the equipment is $450,000. Assuming a discount rate of 3%, use cost-benefit analysis to decide whether the new piece of equipment is a good investment.
4. Suppose a treatment has a 90% chance of being successful, which would result in a total cost of $10,000. If unsuccessful, further treatment will cost $80,000. What is the expected cost of the treatment?
5. For an individual with $8,000 in annual drug expenses, how much would he/she pay out of pocket in Medicare Part D under the 2006 rules?