Chapter 4, # 15
15. Consider an employee who does not receive employer-based health insurance and must divide her $1,000 per week in after-tax Page 133
income between health insurance and \"other goods.\" Draw this worker's opportunity set if the price of health insurance is
$200 per week and the price of \"other goods\" is $100 per week. On the same graph, illustrate how the opportunity set would change if
the employer agreed to give this employee $200 worth of health insurance per week (under current tax laws, this form of compensation
is nontaxable). Would this employee be better or worse off if, instead of the health insurance, the employer gave her a $200 per week
raise that was taxable at a rate of 25 percent? Explain. (L06)
Hint: Show graphically page 120 and 121.
Initial Budget Line
Budget Line with taxable cash equivalent health insurance benefit
Budge line with health insurance benefit
Do not need to have the calculations, only show graphically
Other goods on vertical axis of graph,
Quantity of Heath Insurance on horizontal axis of graph
