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Assignment 3 - Health Economics: Problems and Policy | ECON 450, Assignments of Economics

Material Type: Assignment; Class: Health Economics: Problems and Policy; Subject: ECONOMICS; University: University of North Carolina - Chapel Hill; Term: Spring 2009;

Typology: Assignments

Pre 2010

Uploaded on 03/11/2009

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Econ 450 Homework #3 Gilleskie
Homework Questions
From Health and Health Production lectures (chp 5 and 6)
1.) Write down a health production function that depends on the two inputs: amount of
medical care and hours of exercise. That is, provide the functional form and numerical
values (not just Greek letters and function notation). Be sure that the returns to both
inputs are positive but have diminishing returns. What does that last statement mean in
words? What is the marginal product of medical care?
From Demand for Health lectures (chp 7)
2.) List at least three factors that might increase an individual’s marginal efficiency of
investment in health capital.
3.) People who earn a higher salary can afford more of all goods, including health care.
However, according to Grossman, they will choose a higher desired health stock. Explain
why is this so using his model?
4.) Each of these questions is a good example of the type of question that demonstrates your
ability to use the Grossman model.
a. Suppose that John Smith gets promoted to a job that causes two changes to occur
simultaneously: John earns a higher wage, and a safer environment causes his
health to depreciate less rapidly. How would these two changes together affect
John’s desired health capital?
b. Suppose that John could work 365 days per year and could earn $200 per day for
each day he worked. Draw his budget line with respect to his labor-leisure
choice.
c. Suppose that John chooses to work 200 days per year. Draw the appropriate
indifference curve, and note his equilibrium wage income and labor-leisure
choices.
d. Suppose that John’s wage rises from $200 to $210 per day. Show how his
equilibrium level of income and labor-leisure will change.
e. Suppose that John is ill 10 days per year. Draw the impact of this illness on the
equilibrium defined in c. above. How will it change his equilibrium allocation of
earnings and labor-leisure?
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Econ 450 Homework #3 Gilleskie Homework Questions From Health and Health Production lectures (chp 5 and 6) 1.) Write down a health production function that depends on the two inputs: amount of medical care and hours of exercise. That is, provide the functional form and numerical values (not just Greek letters and function notation). Be sure that the returns to both inputs are positive but have diminishing returns. What does that last statement mean in words? What is the marginal product of medical care? From Demand for Health lectures (chp 7) 2.) List at least three factors that might increase an individual’s marginal efficiency of investment in health capital. 3.) People who earn a higher salary can afford more of all goods, including health care. However, according to Grossman, they will choose a higher desired health stock. Explain why is this so using his model? 4.) Each of these questions is a good example of the type of question that demonstrates your ability to use the Grossman model. a. Suppose that John Smith gets promoted to a job that causes two changes to occur simultaneously: John earns a higher wage, and a safer environment causes his health to depreciate less rapidly. How would these two changes together affect John’s desired health capital? b. Suppose that John could work 365 days per year and could earn $200 per day for each day he worked. Draw his budget line with respect to his labor-leisure choice. c. Suppose that John chooses to work 200 days per year. Draw the appropriate indifference curve, and note his equilibrium wage income and labor-leisure choices. d. Suppose that John’s wage rises from $200 to $210 per day. Show how his equilibrium level of income and labor-leisure will change. e. Suppose that John is ill 10 days per year. Draw the impact of this illness on the equilibrium defined in c. above. How will it change his equilibrium allocation of earnings and labor-leisure?

From Demand for Health and Insurance Lectures (chp 7 and 8) 5.) Read the interview with Helen Levy who discusses why some people do not buy health insurance. http://eriu.sph.umich.edu/forthemedia/interviews levy.html Name at least 4 aspects or components of an individual's optimization problem (with regard to optimal health insurance decisionmaking) that are mentioned in the interview. Specify in general the “aspect”, and also specify where in the individual’s optimization problem this aspect occurs or can be found. From Demand for Medical Care Lecture (chp 9) 6.) How can the deductible feature of a health insurance policy affect moral hazard? 7.) Suppose an individual’s employer provides a health insurance policy that pays 80 percent of each dollar over the first $100 spent. If the individual incurs $1000 in expenses, how much will he pay out-of-pocket? What percentage of his expenses will this be? 8.) This exercise is a good example of a problem that requires some mathematical manipulation and an understanding of theory. Consider the following information on Alfred’s demand for visits per year to his helath clinic, if his heath insurance does not cover clinic visits. P Q a. Alfred has been paying $30 per visit. 5 9 How many visits does he make 10 9 per year? Drew his demand curve. 15 9 20 8 b. What happens to his demand curve if the 25 7 insurance company institutes a 40 30 6 percent coinsurance feature (Alfred pays 35 5 40% of the price of each visit)? 40 4 What is his new equilibrium demand? 9.) Suppose that a consumer makes V 0 physician visits each year at a price of P 0. If the price elasticity is -0.4, what will happen to the number of visits if the price increases by 10 percent? What will happen to total physician expenditures? Why?