Consider the country Unsanitaria. The country has poor sanitation systems so the people fall sick often, miss work and lose income. Low income is also the reason why they cannot afford sanitation.

The effect of health (H) on income (Y) is given by

Y =5H

The effect of income (Y) on health (H) is given by

H = (Y/10) + 2

a) What is the equilibrium income in this country?

Subsequently, the government of Unsanitaria improved the sanitation system in the country so the health indicators became better even for low-income people. The effect of income (Y) on health (H) after sanitation improvements became:

H = (Y/10) + 12

b) What is the income in this country after sanitation improvements? Was a 10 unit improvement (from 2 to 12) worth the cost?