3. Suppose that a consumer is consuming an optimal mix between health and all ot

Question

3. Suppose that a consumer is consuming an optimal mix between health and all other goods given by (m*, AOG*) (30, 750). The consumer gets appendicitis, she takes a paid sick leave to get better and all expenses are covered by her nsurance a. How does this disease event affect her optimal bundle? In particular, what happens to the optimal amount of m that she consumes? b. Now suppose that she does not have the option of a paid sick leave; so she takes a pay cut for the workdays that she missed. How does your answer from (a) change?

Explanation / Answer

A. The disease will increase her share in spending for health(m) and in her optimal bundle m increases while AOG decreases. Eventhough, the company pays for her sick leave, the money would go from her hands only. But if the company provides her benefits such as medical insurance (for instance Mediclaim) , her optimla bundle does not change at all..

B. If she does not have a paid sick leave, the optimal bundle changes in the same way as that in A but it changes in more frequency or intensity. The emphasis on m becomes more than that of AOG, that is, the increase in m in more tha her decrease in AOG. The bundle of goods changes in her curve and also the the curve falls to left(decreases) since her income is now lower due to the cut in her salary or wages.

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