Question

At a health screening, Kathy found that she had a BMI of 31. She immediately began a diet to lose 25 pounds over the following year. The diet is an example of: health capital consumption. health capital investment. neither consumption nor investment. O both consumption and investment

Answer 1

Question 1) Option B - Health capital investment.

Health capital investment is when there are preventive measures taken for health while expenditures after getting sick such as hospital expenditures are considered as health capital consumption. Here, since Kathy has began dieting to prevent getting sick due to being over weight, it is a preventive measure and it is considered as a health capital investment.

Question 2) Option B - C to A

When the cost of capital falls from C1 to C0, due to a decrease in the cost of capital, there would be an increase in the quantity demanded in health investment. This is because MEI is a downward sloping curve and it is due to the change in the cost of capital keeping all other factors constant that the equilibrium will move along the MEI curve and not shift. Hence, the equilibrium moves along the MEI1 curve from the equilibrium point C to A.

Question 3) Option D - lower health investment expenditures from 2000 to 1600.

When there is an increase in the cost of capital from 0.10 to 0.20 that is from C0 to C1, it means that since the MEI is a downward sloping curve, the health investment expenditure would shift in the opposite direction of the cost of capital, that is, the health investment would decrease from the equilibrium of C0 which is I0 to the equilibrium C1 which is I1. Since I0 is 2000 and I1 is 1600, the health investment expenditure would decrease from 2000 to 1600.