Check whether the statement is true or false.
Explanation of Solution
In the Grossman’s model, health is considered as a durable capital good that gets
Grossman’s model: The Grossman model of health demand shows the interaction between the demand function for health and medical care and the production function for health.
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- Indicate whether the statement is true or false, and justify your answer. In the Grossman model, optimal health status declines with age.arrow_forwardThe Akerlof model can be used to model the health insurance market. In this market, which party is analogous to car buyers? Which party is analogous to car sellers?What would it mean for the health insurance market to unravel?arrow_forwardIndicate whether the statement is true or false, and justify your answer.The Rothschild–Stiglitz model predicts that people who own life insurance should have fewer unobserved traits (that is, unobserved by insurance companies) that lead to a higher risk of death when compared against people with the same level of income but who do not own life insurance.arrow_forward
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- In the framework of the Grossman model, suppose there is an increase in the return in alternate non-health market investments. Draw what happens to the MEC curve and the optimal level of health. Explain intuitively why this might be the case in reality.arrow_forwardIndicate whether the statement is true or false, and justify your answer.Under the typical assumptions of the Rothschild–Stiglitz model, there is nothing that an insurance company can do to distinguish between robust and frail customers.arrow_forwardIndicate whether the statement is true or false, and justify your answer.Unlike in the US, there are no socioeconomic status gradients in health in countries that provide universal health care coverage to all citizens. That is, in such countries, poorer and richer citizens have (on average) the same health.arrow_forward
- Which of the following is NOT a defining characteristic of the Beveridge model? a. universal, public health insurance b. community rating c. publicly provided health carearrow_forwardI do not need the graph, just help with the explanation. Thank you:) A tax on healthy people. Consider the basic Rothschild-Stiglitz model with asymmetric information and robust and frail customers. Suppose the government imposes a Wellness Tax τ > 0, on robust and frail types but collects on this tax only when they are healthy (that is, there is no tax if they turn out to be sick). Will a separating equilibrium still be possible? Draw a version of the Rothschild-Stiglitz diagram to support your answer.arrow_forwardIndicate whether the statement is true or false, and justify your answer.In a Rothschild–Stiglitz model separating equilibrium, low-risk consumers of insurance are quantity constrained. They cannot buy as much insurance as they want because the insurance company is worried it will lose money on them.arrow_forward