Demand for Health Capital and Consumer Choice and Demand, economics homework help
TIP: DRAW ;BIG ;GRAPHS TO IMPROVE CLARITY
1. 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.
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2. 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
3. Suppose that Martha’s income is $40,000 per year. ; She can spend it on health care visits, which cost $80 per visit, or on groceries (standing for “all other goods”), which cost $100 per bag of groceries. ; Draw Martha’s budget constraint. ; Using indifference curves, show Martha’s optimum if she buys 300 bags of groceries per year.
4. Suppose Martha’s income rises to $42,000 per year, and that she increases her consumption of health care visits by five visits. ; Using the graphs for Question 1, draw the new equilibrium. ; What is her income elasticity of demand for health care visits?