Question
Mary is a consumer of medical care. She has income I and faces prices p m and p x for medical care and all other
Mary is a consumer of medical care. She has income I and faces prices pm and px for medical care and all other goods. Given I, px , pm, and Mary's taste towards medical care and all other goods, she consumed quantity m1 of medical care and x1 of all other goods when she was healthy. Today she is sick and her income and prices pm and px have not changed. She consumes a higher quantity of medical care, m2 .
(a). Use a well labeled graph and explain how Mary's consumer choice differs when she is healthy versus sick. Incorporate all variables I, px, pm, m1 and m2 in your graph.
(b). Use two well labeled, clean graphs to derive the demand for medical care for a healthy and a sick Mary. (Hint: Consider two different prices for medical care, pm and pm'. You only have enough information for a sketch and not an exact graph, but make sure that you are consistent between graphs.
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