1. Draw an isoquant graph showing :
a) Suppose that John Smith gets promoted to a job that causes two
changes to occur simultaneously: John earns a higher wage, and a safer
environment causes his health to depreciate less rapidly. How would
these two changes together affect John’s desired health capital?
b) Suppose that John could work 365 days per year and could earn $200
per day for each day he worked. Draw his budget line with respect to his
labor-leisure choice.
c) Suppose that John chooses to work 200 days per year. Draw the
appropriate indifference, and note his equilibrium wage income and
labor-leisure choices.
d) Suppose, using information from iii, that John’s wage rises from $200
to $210 per day. Show how his equilibrium level of income and
labor-leisure will change.
e) Suppose that John is ill ten days per year. Draw the impact of this
illness on the equilibrium defined in iii. How will it change his
equilibrium allocation of earnings and labor vs. leisure.
2)
that pays 80% of $1 over the first $100 spent. If Nathan incurs $1,000
in expenses, how much will he pay out of pocket? What percentage of his
expenses will this be?
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