Consider the Grossman model. For each scenario, correctly complete the sentence

Question

Consider the Grossman model. For each scenario, correctly complete the sentence using the following guidelines:

For the first blank, respond with either “increase” or “decrease”.

For the second blank, insert a number.

For the third blank, respond with either “upward sloping portion”, “downward sloping portion”, or “peak”.

a.) John is deciding how much H and Z to produce. He chooses to increase the time he spends on health by 1 hr per day and this causes the time he spends being sick to fall by 2 hrs per day. As a result of John’s decision, his productive time will ______________ by _____ hours per day. John is on the ________________________________of the H/Z PPF.

b.) Mary is deciding how much H and Z to produce. She chooses to decrease the time she spends on health by 3 hrs per day and this causes the time she spends being sick to increase by 1 hr per day. As a result of Mary’s decision, her productive time will _____________ by _____ hours per day. Mary is on the ________________________________of the H/Z PPF.

Explanation / Answer

a.) John is deciding how much H and Z to produce. He chooses to increase the time he spends on health by 1 hr per day and this causes the time he spends being sick to fall by 2 hrs per day. As a result of John’s decision, his productive time will __Increase____________ by ___1__ hours per day. John is on the ______Upward sloping portion__________________________of the H/Z PPF.

This is because John spends on health by 1 hour per day and due to this time he spends being sick to fall by 2 hors per day which means his productive time will increase by (2-1 =1) hour per day. So he will be on the upward sloping portion of the production possibility frontier.

b.) Mary is deciding how much H and Z to produce. She chooses to decrease the time she spends on health by 3 hrs per day and this causes the time she spends being sick to increase by 1 hr per day. As a result of Mary’s decision, her productive time will ____decrease_________ by __2___ hours per day. Mary is on the _______downward sloping portion_________________________of the H/Z PPF.

In contrast Mary spends 3 hours less per day on health which results in time she spends being sick to increase by 1 hour. It means her productive time will decrease by ( 1-3 = -2) hours. Hence she will be on the downeard sloping portion of the production possibility frontier.

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