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?

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.

Suppose that John chooses to work 200 days per year. Draw the appropriate indifference, and note his equilibrium wage income and labor-leisure choices.

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. 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. Suppose that Nathan’s employer provides a health insurance policy 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?