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If the income levels of all individuals are equal, the "Population Index" of demand for physician services will be proportional to the population in an area (i.e., demand for physicians will be double in an area compared to another area if the population of the area is double of the other area).  Similarly, if the average income of the area is higher than the other area, multiplication of the "population index" by the income elasticity and income ratios of the two areas (income elasticity x (income of one area/income of another area)) will give the "Income Index". The "Total Index" will be sum of "Population Index" and "Income Index". In the table below, population and average income levels are shown for the areas A, B, C. D and E. Consider area "E" as the comparison area for your calculations. Assume that all the areas are equal in geographic size. If there are 500 physicians in this country and income elasticity is 0.4, find the number of physicians to be located in each of the areas if the physicians are income maximizers.

Area

Pop

Income/cap

A

7558900

42500

B

2185000

15800

C

55000

35200

D

22500

25500

E

10300

10830

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M937983

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