Q7. (a) The New and Improved Health Insurance plan picks up 70% of annual medical costs

Q7.\n(a) The New and Improved Health Insurance plan picks up 70% of annual medical costs over and above $200 (called the “deductible”); i.e. after spending $200 on medical care, the cost to the buyer drops by 70%.  With income on the y-axis and medical care on the x-axis, draw the budget constraint of a healthy individual (H) and a sick individual (S), both having the same income.

                    (b) Sketch the indifference curves of two such individuals.

(c) Show that with the deductible, individual H is better off demanding less medical care and individual S is better off demanding more medical care.v