Question

True/False Explain. Indicate whether each of the following statements is true or false and then explain why you think this, Include in your explanation any pertinent institutional details and economic reasoning (including appropriate graphs and equations). a. Suppose you are interested in estimating the elasticity of demand for medical care. A good way to do this would be to compare the quantity demanded by people with insurance to the quantity demanded by people who chose not to buy insurance, and estimate how quantity responds to the reduction in prices caused by insurance coverage. b. In Figure I below, an individual with high levels of education has marginal efficiency of investment given by MECH. The marginal efficiency of investment for an individual with low levels of education is given by MECC MECC MECH (+가 . Hmin c. In the Grossman model, the optimal choice of health status decreases as people get older. d. According to the model of rational addiction, an increase in taxes on addictive goods is likely to reduce the number of non-addicted consumers who try the addictive good for the first time.

Answer 1

a) True. Elasticity of demand for medical care will be more elastic if quantity of people demanding insurance is more than people with no insurance. People demanding insurance will increase with reduction in prices caused by insurance coverage.

b) False. Marginal Efficiency of Investment curve of an individual with high levels of education will be above Marginal Efficiency of Investment Curve of an individual with low levels of education. But in the figure opposite is shown.

c) True. It means natural deterioration of health over time. Older people will have more sick time and time spent on increasing health and have higher medical expenditures than younger people.

d) False. An increase in taxes on addictive goods will reduce the number of addicted consumers who try the addictive good for the first time because he would be rational towards spending his income judiciously.