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Consider an individual who is trying to determine the optimal allocation of health, H, and a home good, Z.Draw the Health PPF for this individual.
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.
