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AECO381 Midterm Outline

AECO381 Midterm Outline - AECO381 Outline Law of...

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AECO381 Outline Law of Diminishing Marginal Returns-After a certain point, marginal product of an input tends to decline, holding other input levels constant. H=f (Medical care, Lifestyle, Environment, Health Endowment) Productivity changes on the intensive margin-Same population, more services Productivity changes on the extensive margin-Change or expand population, more services Wolf Article: Lifestyle drives changes in health and medical care counteracts this Lifestyle acts as another factor Consumer Theory: 1. Individuals derive utility from health not directly from health care 2. Health is viewed as a durable good (capital) from which we obtain a stream of services “Healthy Days” 3. H=h(med care, lifestyle, initial endowment, SES (education)) 4. A. Law of diminishing marginal utility B. Law of diminishing marginal return 5. U(h) Total Utility-Total amount of satisfaction you draw from consuming certain level of goods and services Marginal Utility-Additional satisfaction gained from consuming another unit of good Consumers want to maximize utility with their budget constraint Properties of indifference curves-all the combinations of two items the consumer is indifferent between 1. Indifference curves generally slope downward to the right 2. Indifference curves cannot intersect Slope of indifference curve=Marginal rate of substitution (MRS) If MRS is high you are willing to give up a lot of Y for a unit of X
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