Q1

a) Describe and illustrate the derivation of the optimal choice of health status, health care, and the composite "all other consumption" commodity in the Wagstaff model of the demand for health care.

b)Suppose that a global health pandemic, known as "new-virus", results in a dramatic increase in the demand for medical equipment and medically trained personnel. The rapidity of this increase far outstrips the ability of supplies of medical equipment and medically trained personnel to respond in the short-run. Ignoring any impacts from health insurance or health care price regulation, what impact is this likely to have on the have on the price of health care services?

c) Analyse the short-run impact of this shock on the optimal choice of health status, health care, and the composite "all other consumption" commodity in the Wagstaff model. (Interpret health status in this question to be separate of any direct health impacts of "new-virus". In other words, assume, rather unrealistically, that there are no co-morbidities between "new-virus" and other diseases. Similarly, interpret health care consumption as excluding any health care consumption directly resulting from the treatment of "new-virus".)

d) If the shock that is being considered in this question had any short-run impact on the consumption of health care by the representative individual, then it might well also have a long-run impact on the representative individual's stock of health capital. If the shortrun impact of the shock involved a reduction in the consumption of health care, assume that there is a subsequent reduction in the stock of health capital in the long-run. If the short-run impact of the shock involved an increase in the consumption of health care, assume that there is a subsequent increase in the stock of health capital in the long-run. If the short-run impact of the shock involved no change in the consumption of health care, assume that there is no change in the stock of health capital in the long-run. 4. Suppose that, in the long-run, supply-side adjustments in the health care industry result in the price of health care services returning to its pre-shock level. (A sucient condition for this to occur would be for the health care industry to be a constant cost industry, resulting in a perfectly elastic long-run industry supply curve at the pre-shock price level.) Analyse the impact of the combination of this change and any change in the health capital stock for the representative individual that results from the short-run impact of the shock. (Hint: The long-run impact of this shock should be applied to the outcome after the short-run impacts of the shock have occurred.)

e) 5. Has the shock caused by "new-virus" had only a temporary impact on the representative individual's use of health care, health status, and "all other consumption", or only a permanent impact, or both temporary and permanent impacts?