East Wakaria’s Production Possibilities Table* Product Alternative ( tons !
September 3, 2020
Suppose that you are an airline executive and you come to work one morning to find a memorandum on our desk indicating that the Boeing 747 that your
September 3, 2020

1.    Consider an individual who is trying to determine the optimal allocation of health, H, and a home good, Z.

a.    Draw the Health PPF for this individual. Assume that the utility function of the individual is a standard Cobb-Douglas utility function. In your graph, draw the indifference curve that represents the optimal bundle of H and Z. label this point F and explain why this is the optimal bundle.

b.    Now assume that the individual is unable to produce as much health and home good as they previously had. In your graph above, show how this adverse health shock changes the PPF and the optimal bundle of H and Z. label the new optimal point G. why did you change the PPF the way you did.

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