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In: Economics

Anne has 30,000 dollars that she can spend on health care (c1) and a composite good...

Anne has 30,000 dollars that she can spend on health care (c1) and a composite good of everything else (c2). The price of a unit of health care is p1 = 50 dollars and the price of the composite good is p2 = 1.

a) Draw Anne’s budget constraint in a graph with c1 on the horizontal axis and c2 on the vertical axis.

b) Anne is offered a health insurance policy. The policy premium (the up front cost of the policy) is 4,000 dollars. The policy offers to cover 80% of Anne’s health care expenses up to a maximum of 100,000 dollars. It has a deductible of 1,000 dollars, meaning that Anne has to pay the first 1,000 dollars of expenses herself after which the 80% coverage kicks in. Draw Anne’s budget constraint if she purchases the health insurance

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Rahul Sunny answered 1 year ago
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