Question

Draw a budget constraint diagram with health care on the vertical axis and other goods on the horizontal axis and assume the household has $50,000 of income. Let the price of health care be $2 and the price of other goods be $1. Illustrate the budget choice set for a household with a high deductible health care insurance plan of $5,000. (Hint: after the deductible is paid, the household pays a price of zero for health care.)

Answer 1

A household is with a high deductible health care insurance plan. Let us assume that the amount deductible is = x household has $50,000 of income Hence amount left for other goods $50000-x as the cost of health care is to reimbursed If the insurance is not paid, then with a amount of health care and b amount of other goods, we could assume: a+2b 50000 And with insurance being paid, x+a= 50000 (x= premium costs health care cost)

Heat Cb) 50, o0o Goods(a) x) (o, so,ooo) (5o, Good, (a)