Atm Economic in Health Care Grossman Model Paper

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QUESTION 1

What are the key features of the Grossman model? (Hint: list as many features as you can)

QUESTION 2

Grossman suggested considering health as a consumption and as a capital good. Provide examples and explain how health is being “consumed” and how health can be treated as a capital. (Hint: why do people want to be healthy?)

QUESTION 3

Using Grossman model explain why people would demand less health stock as they get older (assuming that preferences do not change and wage is the same). Draw graph with MEI and Marginal costs and identify initial demand for health stock. Then identify appropriate changes in MEI and/or marginal costs and find new level of health stock. Take a photo and upload your answer here.

QUESTION 4

Using Grossman model explain what would happen to the demand for health stock as people get older and their preferences for health change. Assume that older people value health more than younger people. Draw a figure showing initial MEI, Marginal Costs and initial level of health stock. Then demonstrate appropriate changes/shifts in MEI, MC, and optimal level of health stock relative to the initial. Upload your picture here.

QUESTION 5

Using Grossman model explain what would happen to the demand for health stock.Assume that John was working as a construction worker that is a very physically demanding job (meaning high depreciation rate of health). He was able to find another job in an office that would provide the same income but it is much safer and less physically exhausting meaning that his health depreciation rate is now lower. What would happen to John’s demand for health stock? Draw a figure showing initial MEI, Marginal Costs and initial level of health stock. Then demonstrate appropriate changes/shifts in MEI, MC, and optimal level of health stock relative to the initial. Upload your picture here.

QUESTION 6

Would you expect demand for Tylenol to be price elastic or inelastic? Explain.

QUESTION 7

Would you expect demand for nursing homes to be price elastic or inelastic? Explain.

QUESTION 8

What conditions are necessary for insurance market to exist? Explain.

QUESTION 9

Using demand and supply curves demonstrate the change in health care expenditures resulted from the introduction of health insurance (assume coinsurance rate of 50%). Identify deadweight loss on the graph. MUST HAVE LABELS! Take a photo and upload image here.

QUESTION 10

Would you expect demand for physician services for healthy people to be more elastic or less elastic compared to price elasticity of demand for unhealthy people? Explain.

QUESTION 11

Suppose that John’s employer provides a health insurance policy that has $1,500 deductible with 20% coinsurance rate and $6,000 out of pocket maximum. If John incurs $10,000 in hospital charges, how much will he pay out of pocket?

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