Directions: Any words you write must be entirely your own. You cannot work with other students. You cannot quote directly from any source, including the textbook and other written material distributed by the instructors.

If you are asked to appraise a statement, then you must begin your answer with an explicit assertion about whether the statement is True of False. The rest of your answer should explain why you assert that the statement you are appraising is true or false. Use appropriate graphs to enhance your appraisals and essay questions, making sure to clearly label everything. If specific graphs are mentioned in the question then you must use them appropriately in your answer, but other graphs that are not mentioned may also be relevant, in which case you must decide what other graphs, if any, to include. Verbal explanations must be focused and succinct – points will be deducted for answers that are unfocused or unnecessarily long. All graphs must be entitled Fig. 1, Fig. 2, etc., and as you write you should refer to these graphs by their titles. You may either attach all graphs at the end, or embed them within each of your answers – whatever works best for you. Draw BIG graphs to improve clarity.

Question #1

Suppose that Wilma’s income is $56,000 per year. She can spend it on healthcare visits (V) or on all other goods (OG). The price per V is $70, and the price per OG is $150.

a. Draw Wilma’s budget constraint (put V on the horizontal and OG on the vertical axis). Using indifference curves, show Wilma’s optimum if she buys 366.33 OG per year.

b. Suppose that Wilma’s income rises to $70,000 per year, and that she increases her consumption of V by 3. Show the new equilibrium on the graph. What is her income elasticity of demand for V?

Question #2

Appraise: When society allocates resources toward medical care in order to improve population health, by definition that means that resources are diverted from the production of other goods and services. Your appraisal must contain all of the following elements:

ï‚· An illustration of the importance of scarcity, choice and opportunity cost

ï‚· An analysis of how factors other than medical care may improve population health

ï‚· An explanation of how health reform initiatives such as the Affordable Care Act represent a choice about how resources are allocated, and the possible consequences of this choice.

ï‚· Application of a production possibilities curve

ï‚· Application of a production function of health

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