Chapter 3, Problem 1E

To determine

Check whether the statement is true or false.

Explanation of Solution

In the Grossman’s model, health is considered as a durable capital good that gets depreciated over time. The medical care purchases, diet, and exercise time are an investment in the health model, and depreciation and some other factors are considered as natural deterioration of health over time. In this model, health is the main factor that drives the utility function. The utility gain by health investment is in direct or indirect form. People’s satisfaction or pleasure of healthiness is the direct form of utility gain from health investment, whereas the healthy time available for daily activities is the indirect form of utility gain from health investment. The utility function derived by health investment is used by Grossman to optimize the utility over gross investment in health in each period. Thus, the given statement is false.

Economics Concept Introduction

Grossman’s model: The Grossman model of health demand shows the interaction between the demand function for health and medical care and the production function for health.