Question 2
1. Describe and illustrate the derivation of the optimal choice oi health statics, health care, and the composite L'all other consumption" commodity in the Wagsta model of the demand for health care.l {'5' marks.) Suppose that a global health pandemicI known as L'netIIr'Irirus". results in a dramatic increase in the demand for medical equipment and medically trained personnel. The rapidity of this increase Ear outstrips the ability of supplies oi medical equipment and medically trained personnel to respond in the shortrun. 2. 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 senricars'l:| {2 marks.) 3. Analyse the shortrun impact of this shock. on the optimal choice of health status, health care, and the composite \"all other oonsumption'I commodity in the Wagsta' model. {Interpret health status in this question to he separate of any direct health impacts of \"new-virus". In other wordsI assume, rather unrealistically, that there are no comorbidities between \"new-virus'I and other disemes. Similarly, interpret health care consumption as excluding any health care consumption directly resulting from the treatment of \"new-virus".}l {'5' marks.) If the shock that is being considered in this question had any shortrun 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 short run 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 longrun. It the short-run impact of the shock inmlved an increase in the consumption of health careI amume that there is a subsequent increase in the stock of health capital in the longrun. It' the shortrun impact of the shock involved no change in the consumption of health careI amume that there 'm no change in the stock of health capital in the longrun. 4!. Suppose that, in the longrunI supply-side adjustments in the health care industry result in the price of health care services returning to its pre-shock. level. [A sufcient condition for this to occur would be for the health care industry to be a constant cost industry. resulting in a perfeme elastic longrun industry supply curve at the pro-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 longrun impact of this shock should be applied to the outcome alter the shortrun impacts of the shock have occurred.) [it marks} 5-. Has the shock caused by \"new'Irirns'I had only a temporary impact on the represen tative individual's use of health care, health status, and L'all other consumption" , or only a permanent impact, or both temporary and permanent impacts'i| {2 marks-)
