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Illustrating labor-leisure tradeoff in grossman model

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The Grossman Model

  1. Draw a graph illustrating the labor-leisure tradeoff in the Grossman Model. Your axes should both be in terms of time units. Illustrate on your graph what happens when the individual acquires diabetes. Label all relevant intersection points, axes, and clearly denote where the individual is after the negative health shock and time lost to diabetes care.
  2. Now draw the Grossman production possibilities frontier (with utility curve) showing the amount of home good (Z) and health (H) the individual will consume. Be sure to label which point is before and which point is after acquiring diabetes.
  3. Now illustrate the health shock on a graph with marginal efficiency of capital. Clearly label the point before and after acquiring diabetes. Note your shock with a directional arrow

Reference no: EM133084392

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