A. True/False Explain. Indicate whether each of the following stat...

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A. True/False Explain. Indicate whether each of the following statements is true or false and then explain why you think this. Include in your explanation any pertinent institutional details and economic reasoning (including appropriate graphs and equations). Please provide concise, clear answers with minimal irrelevant detail. Explanation is required. 1. In the Grossman model, optimal health status declines with age. 2. Suppose you are interested in estimating the elasticity of demand for medical care. A bad way to do this would be to compare people who are healthy to people who are sick, and estimate how prices affect the amount of additional care that sick people choose to purchase. 3. According to the model of rational addiction, if the tax on an addictive good increases, it could lead to an increase the number of non-addicted consumers who try the addictive good. 4. In Figure 1 below, an individual with high levels of education has marginal efficiency of investment given by MEL The marginal efficiency of investment for an individual with low levels of education is given by MEI. Figure 1. MEI MEI 50+r Cost of 6,+r Capital 52+r Health Stock 5. In real life, investments in health can generate long-lasting benefits. but the Grossman model neglects this aspect of health. B. Analytical Problems: Please show all calculations for full credit. 6. Suppose you are collecting data from a country like Japan where the government sets the price of health care. Each prefecture in Japan has a different set of prices. Data from 1999 are displayed in the following table Table 2.12: Outpatient utilization in Tokyo and Hokkaido, 1999. Region Outpatient visits Price/visit Tokyo 25/month 20Y Hokkaido 1.5/month 10Y a what is the arc price elasticity of demand for health care in Japan based on these data? b- Suppose that incomes are generally much higher in Tokyo than in Hokkaido. Is the Correct demand function more clastic or more inclastic than your answer to the previous question? Justify your anSwer. C. Using your estimated elasticity from part a, what would the demand for health care be if the price in Tokyo were raised to 30 Yen per visit? d. What would the demand in Hokkaido be IF the price were lowered to 5 Yen per visit? 7. Washington State decides to introduce a tax on the sale of marijuana- Assume the clasticity of demand is -0.5. and that supply is perfectly clastic. a) If the tax increases the price of marijuana by 60%, what will happen to the amount that is sold? b) SuppoSe marijuana is addictive, and that conSumers who choose to buy itare rational addicts Explain what the theory of rational addition predicts will happen to the quantity Sold today if the tax increase begins next year. (Note the theory of rational addiction says nothing about Stockpiling goods to avoid paying taxes, so that is not the answer Iam looking for.) c) (Extra Credit QueStion) suppose there isa legal market with perfectly clastic supply that pays the tax, and a secondary black market that evades the tax. The clasticity of supply in the black market is 1 (the number doesn' matter, just assume that it's neither perfectly clastic nor perfectly inclastic). and assumes that after the taxit's cheaper to buy from the black market at low market quantities Draw an example of what the market supply curve would looklike- (Hint the market supply curve repreSents the lowest price at which you could buy a given quantity of a good.) Now suppose the state is short on money So they raise the axrate. Show using a supply demand diagram what will happen to total tax revenue-

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A: True or False with explanations

1. True:
This is because, as individuals become older, they tend to get sick often and hence their health status also declines with age.
2: True
Since medical care is demanded by both healthy people and sick people this comparison between the two categories would give an more efficient estimate of the demand elasticity for medical care.
3. False: When the price of a commodity increases, the number of consumers for that product would decrease (and not increase) and this is particularly for the non-addictive consumers who might try the good.
4. False: A higher level of education would always result in higher level...

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