Chapter 2 - Chapter 2(LISTEN TO BEGINNING OF RECORDING...

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Chapter 2 08/28/13 (LISTEN TO BEGINNING OF RECORDING) Health is like a durable good (think a refrigerator) and is a stock variable Stock variable: o EX: health—you have a certain health today, 10 years from now it will be different (it will deteriorate over time) Flow variable: you track it over time o EX: income o You’d have to attach a time period to it or it’ll make no sense Health is desired because it yields utility (satisfaction, happiness) o Health yields utility for consumption purposes —a healthy person will enjoy a better quality of life Consumption products: something you use up o Health yields utility for investment purposes —when we are in good health we can work more and generate more income Investment purposes: EX: school is an investment (we are all hoping for better jobs etc.) o Total Utility Curve: There is a positive relationship between health and total utility As health increases, total utility also increases (though the additional happiness gets smaller and smaller)—better health makes you happier o Marginal utility curve:
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