Q -- Suppose a health expenditure function is specified in the following manner:

E = 500 + 0.2Y,

where E represents annual health care expenditures per capita and Y stands for income per capita.

A. Using the slope of the health expenditure function, predict the change in per capita health care expenditures that would result from a $1,000 increase in per capita income.

B. Compute the level of per capita health care spending when per capita income takes on the following dollar values: 0; 1,000; 2,000; 4,000; and 6,000.

C. Using the resulting values for per capita health care spending in part B, graph the associated health care expenditure function.

D. Assume the fixed amount of health care spending decreases to $250. Graph the new and original health functions on the same graph. What is the relation between the original and new health care expenditure functions?

E. Now assume that the fixed amount of health care spending remains at $500 but the slope parameter on income decreases to 0.1. Graph both the original and new health care expenditure functions. Explain the relation the two lines.