Health capital decisions: Two parts

a) What would happen to equilibrium level of health capital if there is an increase in educational attainment of the person concerned? To keep things simple, assume that education changing will only affect the supply side of this process. Please use the "supply and demand" type graph shown in class to show the change in H*. Make sure to explain the graph and answer fully.

b) Suppose that there are at least two ways that the value of our time (our wage rate, our earnings per hour) could affect our supply and demand for our own health. High wage rates mean that its harder to take time out to exercise and for other things needed for good health, so it affects our supply side. One the other hand, high wages also mean that its more important to be healthy to be able to put in longer hours at work, so it affects our demand side. Suppose we suffer a very large reduction in our wage rate. Please draw "supply and demand" type graph shown in class, to illustrate what would happen to the equilibrium level of health capital through this reduction in wage, showing how it could affect the demand curve as well as the supply curve (hint, it could go either way, depending on how much each of the graphs shift). Make sure to explain the graph and answer fully.

Answer rating: 100% (QA)

Part a Impact of Educational Attainment on Health Capital Equilibrium When educational attainment in... View the full answer