Consider Figure 22.4 where health insurance and other goods are measured in dollars spent. Suppose Adam spends no money on health insurance, Steve spends 6 percent of his income on health insurance, Beth spends 10 percent of her income, and Jackie spends 15 percent of her income.

(a) Draw each person’s location on the budget constraint.

(b) Suppose that a government program offered at no cost a level of insurance equal to 5 percent of one’s expenditures. Indicate this on the graph. Which person(s) would be certain to “take up” the new policy? Which would be certain not to take up the policy?

(c) Redraw fi gure

(b) with a program that was offered with a 50 percent subsidy, rather than without cost. Which person(s) would be certain to “take up” the new policy?
Which would be certain not to take up the policy? Would your answers vary from answer (b)? Defend your reasoning.

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