In: Economics
Anne has 30,000 dollars that she can spend on health care (c1) and a composite good of every- thing else (c2). The price of a unit of health care is p1 = 50 dollars and the price of the composite good is p2 = 1.
1)Draw Anne’s budget constraint in a graph with c1 on the horizontal axis and c2 on the vertical axis.
2)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.