Homework -
Problem 1 - Suppose that Sara'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.
a. Draw Sara's budget constraint. (Hint: Y= groceries, X= health care visits. Review PP Chapter 2). See textbook, Figure 2-8.
b. Using indifference curves, illustrate Sara's optimum if she buys 300 bags of groceries per year. See textbook, Figures 2-9.
c. Suppose that Sara's income rises to $42,000 per year. What happens to the budget constraint?
d. Suppose that Sara's income rises to $42,000. What is her income elasticity of demand for health care visits? Please explain.
Problem 2 - Consider the following information on David's demand for visits per year to his health clinic:
|
P
|
Q
|
|
5
|
13
|
|
10
|
12
|
|
15
|
11
|
|
20
|
10
|
|
25
|
9
|
|
30
|
8
|
|
35
|
7
|
|
40
|
6
|
|
45
|
5
|
|
50
|
4
|
a. If his health insurance does not cover clinic visits and the current cost per visit is $50, how many visits does he make per year?
b. Draw his demand curve.
c. What happens to his demand curve if insurance company institutes a 40% coinsurance feature (David pays 40% of the price of each visit, currently $50 x 40%= $30).
d. See part c. How many visits is he going to make if the company institutes a 40% coinsurance feature?
Problem 3 - Suppose that a consumer makes V0 physician visits each year at a price of P0. If the price elasticity is -0.3,
a. What will happen to the number of visits if the price increases by 10%?
b. What will happen to consumer expenditure? Please explain.
Attachment:- Assignment Files.rar