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MEI curve and health production function

In his early work on the demand for health, Grossman (1972) found a negative relationship between income level and health. The negative effect of income on health was found only when the wage rate was held constant; thus, it was associated only with the nonwage component of income (i.e. other forms of wealth that increase total income). Provide an explanation for this phenomenon in which this is considered a negative input into the health production function. Provide specific examples of these negative inputs. What happens to the MEI curve? Provide another negative input into the health production function.

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Grossman assumed that working people need health care in order to maintain their wages (if they are sick they can't work) and that working itself causes a deterioration in health. Thus, people who work more will need more health care. Nonwage income would therefore not influence the demand for health in the same way. In fact, the more nonwage income a person has, the less they would need to worry about their health (since they ...

Solution Summary

Why health is negatively associated with the nonwage component of wealth

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