Suppose that Wilma’s income is $56,000 per year. She can spend it on healthcare visits (V) or on all other goods (OG). The price per V is $70, and the price per OG is $150.
a. Draw Wilma’s budget constraint (put V on the horizontal and OG on the vertical axis). Using indifference curves, show Wilma’s optimum if she buys 366.33 OG per year.
b. Suppose that Wilma’s income rises to $70,000 per year, and that she increases her consumption of V by 3. Show the new equilibrium on the graph. What is her income elasticity of demand for V?
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