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Answer the following questions related to the Grossman model:
(a) Explain the difference between health being considered as (i) investment good and as (ii) consumption good.
(b) One can derive a demand function for health and for medical services from the Grossman model. Explain the differences between the two demand functions. Why does demand for health and for medical services depend on age?
(c) In richer countries, expenditure on medical services is higher. Explain this fact using the Grossman model.
Moral Hazard: Read the article by Pauly (1968) that is posted under reading assignments. Explain why on page 533 in Pauly (1968) the individual would have to pay 112.5 MC for the insurance policy.
Patient A buys 4 doctor visits at $20 a visit and 6 visits at $10 a visit. What is the price elasticity of his demand for visits? If in addition to the money price he has to spend $30 in waiting and commuting, what is the full price elasticity? The latter factors in the "total price" of a doctor visits.
What is the long-run equilibrium market price and quantity and what is the long-run number of firms in the industry? How much does each produce? What are their profits?
Economists also use the principle of comparative advantage to advocate free trade among countries as a better policy. Trade is not based on absolute advantages countries have but the relative (comparative) advantage. 1. Does free trade contribu..
The U.S. government administers two programs that affect the market for cigarettes. Media campaigns and labeling requirements are aimed at making the public aware of the dangers of cigarette smoking
A function of government is to regulate natural monopolies. Describe what is a natural monopoly and why it needs government regulation
Calculate the expected value of the "lottery", in which Maria participates and calculate the utility of the expected value of the lottery.
Demand and supply schedules
You have just started work for a small company, FitCo, that develops private fitness clubs in small towns. FitCo buys or leases a local hotel or motel, then renovates to provide a gym, swimming pool, sauna, Jacuzzi, and a small café where patrons can..
Is the firm minimizing costs? If not, what steps should it take to lower costs and still produce the same level of output?Is the firm minimizing costs? If not, what steps should it take to lower costs and still produce the same level of out..
Assume that the monopoly faces the inverse market demand function: What should be the monopoly's profit-maximizing output?
Do firms earn accounting profit under perfect competition Do firms earn economic profit Viewing yourself as a firm, would you say that most of your career choices will be made in a competitive market Explain.
Graph the long run equilibrium for perfect competition. Using a similar average cost curve, graph the long run equilibrium for monopolistic competition.
Suppose the Clean springs water company has a monopoly on bottled water sales in California. If the price of tap water increases, what is the change in Clean springs' profit maximizing levels of output, price, and profit
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