. Suppose that you have 365 days per year and could earn $200 per day for each day you worked… 1 answer below »

Income
Equilibrium
– Slope = Wage rate S Tay T9
0
A
(365 — TH— T1) Leisure time
1. A) (5 points) Refer to the above figure. Suppose that you have 365 days per year and could earn $200 per day for each day you worked. Also suppose that you are 10 days ill per year (TL=10) and you spend approximately 5 days per year on health enhancing activities (TH=5). Thus the time that you have available for work and leisure is 365- TH-TL. Draw your budget line with respect to your leisure time and income. Show the values on the intercepts. B) (5 points) Suppose that you choose to work 200 days per year. Draw the appropriate indifference curve that is tangent to the budget line. What is your equilibrium yearly income? What is your equilibrium leisure choice (i.e., how many days)? Show on the graph. C) (5 points) Suppose that you increase the time that you spend on health producing activities, TH, from 5 days to 10 days. Correspondingly, suppose that the number of days lost due to illness, TL , has been reduced to 2 days. Also suppose that the improvement in your health status also increased your productivity at work, resulting in a higher wage, $210 per day. Draw the initial budget line and the new budget line on the same graph. Show how your equilibrium level of income and labor-leisure choice will change (i.e., draw the appropriate indifference curves).
2. (10 points) Consider a consumer with a medical bill of $1,000. He has a $200 deductible and a 20 percent coinsurance rate. What is his “out-of-pocket” liability for this bill?

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