In the production possibilities frontier (Figure 1- Z on the vertical axis, H on the horizontal axis) shown below, for a rational individual who cares only about health ("H"), they will choose to produce the level of home goods and health associated with B H
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- Suppose that income causes health in the following specific manner: h = 2.25y and that health aids income as follows: y = 6 + 3h Based on this information, answer the following: a. Graph the two functions on the (y, h) graph and show the equilibrium (y on the x axis and h on the y axis). b. Derive the equilibrium pair (y*, h*) and show on the graph above. 7 c Now suppose that access to health is segmented by income in this country so that: h= 2 + .25y for all y 50 Derive the new equilibrium and redraw the graphs again in the (y, h) space and depict the old and new equilibria.The Grossman model envisions consumers deciding between investments in health H and investments in home goods Z. Figure below depicts a typical consumer’s production possibility frontier for health and home goods.a. Succinctly describe why the graph is shaped the way it is between points A and B.b. Succinctly describe why the graph is shaped the way it is between points B and C.c. Would any consumer with typical preferences ever pick a point on the graph between A and B? Explain succinctly why or why not.With the use of graphs state how the Consumer’s optimum in the Fisher’s Intertemporal Choice Model.
- The Grossman model envisions consumers deciding between investments in health H and investments in home goods Z. Figure below depicts a typical consumer’s production possibility frontier for health and home goods. a. Would any consumer with typical preferences ever pick a point on the graph between A and B? Explain succinctly (using Figure attached) why or why not. b. Succinctly describe why the graph is shaped the way it is between pointsA and B.c. Succinctly describe why the graph is shaped the way it is between points B and C.Consider the market for pita bread. All else equal, when tastes change such that more people like eating pita bread, we'd expect to see in this market [Select] in equilibrium price and [Select] in equilibrium quantity.In the United States, one of the largest welfare programs is the Supplemental NutritionAssistance Program (SNAP)1representing the second largest in-kind transfer programfor individuals in the US. From the abstract of the study we are told “[a] 1% increasein benefits per population raises grocery prices by a persistent 0.08%. A calibratedpartial-equilibrium model implies a marginal benefit dollar raises a recipient’s consumersurplus from groceries by $0.7, producer surplus by $0.5, and lowers each non-SNAPconsumer’s surplus by $0.05.” In other words, increasing the size of the in-kind transferleads to higher prices. This higher price results in a larger surplus for grocery stores anda lower consumer surplus for individuals not participating in SNAP. Those individualswho participate in SNAP can increase their overall consumer surplus as they haveaccess to more goods, despite the higher price. This result is estimated using thenearly 100% redemption of the SNAP benefits (i.e. assuming the…
- Consider the diagram below. At point C, which of the following statement(s) is (are) true? The American Medical Association reported that the consumption of green peas would lower the likelihood of breast cancer. Which of the following diagrams best illustrates the impact of this medical announcement? (Note: DO is the original relationship and D1 is the new relationship.) Select one: O a. P(green peas) O b. P (green peas) O C. P (green peas) A Do Di Qmreen peas) B Q(green peas)Suppose there is a new preventative treatment for a common disease. If you take the preventative treatment, it reduces the average amount of time you spend sick by 10%. In the Grossman model, we would say that this shifts your productive time budget to the ______ and that your PPF _____. a. left; expands outward b. right; expands outward c. left; shrinks inward d. right; shrinks inwardA recent trend in health insurance is the Health Savings Account (HSA). The idea behind Health Savings Accounts is that rather than providing employees with health insurance that makes visiting doctors cost little more than a simple $10 or $20 copay the employer gives the employee money to use to spend on health care, but the employee bares the entire cost of seeing the doctor. What money given for health care not spent by the employee can be withdrawn by the employee as if it was additional income. It is believed that Health Savings Accounts will reduce the total amount of money spent on seeing doctors. Using Supply and Demand analysis, explain why there is the expectation that HSA’s will reduce spending on doctors.
- Pareto efficiency, or Pareto optimality, is an economic state where resources cannot be reallocated to make one individual better off without making at least one individual worse off. Pareto efficiency implies that resources are allocated in the most economically efficient manner, but does not imply equality or fairness. An economy is said to be in a Pareto optimum state when no economic changes can make one individual better off without making at least one other individual worse off.To simplify analysis and discussion the model for general equilibrium uses the two person, two goods and two resources (or 2 X 2 X 2 model). The investigation is done in three steps:• Consumption efficiency • Production efficiency• A combination of Consumption and Production efficiencies. Critically analyze the concept of Pareto efficiency. Use relevant theory and diagrams to support your analysis.A health club offers two different plans for its visitors. Under plan A, no membership is required and eachvisit costs $10. Under plan B, an annual fee of $200 is paid to become a member and each visit costs only$4. It also sells beverages at a unit price of $10.Let v denote the visits to the health club and b the amount of beverages a customer buys there and pv and pb be their respective prices. Note that pv differs for each plan. Assuming that the potential customers have an annual income of $1000, draw the budget constraints under the two plans on the same graph. [Place v on the horizontal axis and b on the vertical axis.] Label all relevant intercepts and slopes.A budget constraint model differs from production possibilities model in that, typically O only the budget constraint depicts an inverse relationship, or a trade-off. The budget constraint shows how scarcity applies to producers O only the budget constraint demonstrates diminishing returns. only the production possibilities model demonstrates diminishing returns.