Question 5: Consider the analysis described in Figure 20.6. Tom and Dick each earn $25,000 per year. Tom has a spouse and two children, and Dick is unmarried. Health insurance and other goods trade off dollar for dollar (there is no tax advantage to health insurance). (a) Where would each of the two be located on the budget constraint, and why? (b) Which of the two would more likely take up a health insurance program, such as Medicaid? (c) How would your answers to the first two parts change if health insurance were subsidized (as it is) relative to all other goods? eykinked setinsurance, such as those at point E, will enroll in the public sector, because utility level Vof segments ABMC. Responding to the public coverage, people with low values of private(passing through point M) is higher than V. Households with a high valuation of insuranceHouseholds cannot purcmust return to the original budget constraint.Values insurancerelatively more, V,Leads to equilibriumpoint DenoisibbAHealthinsuranceV,'M'Increasingly generous publicinsurance leads to substitutionMof public insurance M for privateinsurance B (crowd-out), or noinsurance C (take-up).Values insurancerelatively less, V,Leads to equilibriumpoint EB0.All other goodsCFigure 20.6 Analyzing the Economics of Take-Up and Crowd-Out530

Budget Constraint is defined as all the possible combinations of goods and services which an…

Consider the analysis described in Figure 20.6. Tom and Dick each earn $25,000 per year. Tom has a spouse and two children, and Dick is unmarried. Health insurance and other goods trade off dollar for dollar (there is no tax advantage to health insurance). (a) Where would each of the two be located on the budget constraint, and why? (b) Which of the two would more likely take up a health insurance program, such as Medicaid? (c) How would your answers to the first two parts change if health insurance were subsidized (as it is) relative to all other goods?

Consider the analysis described in Figure 20.6. Tom and Dick each earn $25,000 per year. Tom has a spouse and two children, and Dick is unmarried. Health insurance and other goods trade off dollar for dollar (there is no tax advantage to health insurance). (a) Where would each of the two be located on the budget constraint, and why? (b) Which of the two would more likely take up a health insurance program, such as Medicaid? (c) How would your answers to the first two parts change if health insurance were subsidized (as it is) relative to all other goods?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter18: Asymmetric Information

Section: Chapter Questions

Problem 18.5P

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