Graphical Analysis: Pertaining to the production of health, we considered the role of several factors that influence the marginal and absolute productivity of inputs of medical care. Plot a production function below and label the curve TP₁.

1. What does the shape of the production function tell us about increasing our consumption of medical care? Are higher units of medical care valued the same as lower? What economic principle does this depict?
2. Now consider the water crisis in Flint, Michigan, in which recent testing has revealed alarming levels of lead in the water. What effect would this environmental factor have on the production of health?
   1. Add the effect to the graph you drew (label TP₂).
   2. Then explain what effect you’ve drawn. Be sure to indicate whether it would result in a shift, pivot, or both of the production function and why. If you identify that it has only one effect – explain why the second is unaffected.

 

I. Production Function Health/Medical Inputs (M) III. Budget Constraint Health (H) Consumption (Composite Good, Z) II. Indifference Map (Preferences) IV. Consumption (Composite Good, Z) 45-Degree Line