Income, Risk, and Consumer Demand for Healthcare

In: Business and Management

Submitted By ejuli20112011
Words 2428
Pages 10
Income, Risk, and Consumer Demand for Healthcare

Why is the depreciation of capital good a cost of society? In what ways does a person’s health depreciate?

Depreciation is the way to track the wear and tear of assets over time. Now, only those assets which are defined as being capital goods can depreciate. The capital goods will provide value or generate income for the company over a period of time normally greater than one year. The depreciation of capital goods requires knowing three different variables: the original cost of the asset, the salvage value of the asset and the life expectancy of the asset. All three of these variables help the organizations or companies to determine the amount to write policies off against income on an annual basis. Based on that, the cost for the society for the use or availability of this service or technology will be established. So the investment for example on a new instrument or new technology will be recuperated thru the years of use as income, and this income would be obtained from the users (customers). At the end, the company will obtain the total investment plus some income from that investment if used by customers to obtain good health. The health is treated as a stock which degrades over time in the absence of "investments" in health, so that health is viewed as a sort of capital. Unfortunately the depreciation rate increases with age similar to any instrument or technology. It is more difficult to achieve or maintain the same level of health capital or stock as we age. The marginal benefit of the health stock also decreases with age; therefore the optimal health stock will reflect a decrease.
Why might older people’s healthcare expenditures increase in the Grossman model even though their desired health stocks may be lower?

In Grossman's model, the optimal level of investment in health occurs…...

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