Hayden and Josh are roommates. They share one bathroom. If Josh cleans the bathroom it takes him one hour. If Hayden cleans the bathroom, it takes him 30 minutes. They both clean the bathroom equally well and both find the job disagreeable. Each of them experiences unpleasantness valued at $100. This $100 accounts for both the opportunity cost of their time and the unpleasantness of cleaning the bathroom. (Another way of thinking of this is that each would happily pay $100 or less to avoid cleaning the bathroom.) When the bathroom is clean, they each experience $75 of wellbeing. (The feeling they get from a clean bathroom is equal to the value they would get from someone giving them $75.) This $75 captures all the wellbeing they get from the clean bathroom including how they feel about the benefit to others who visit or live in their household. a) If Josh cleans the bathroom, what is the total benefit for the household? Does this exceed Josh’s costs?

b) Do you think that Josh will willingly clean the bathroom? Why or why not?

c) Can you think of a ‘regulatory’ solution to their bathroom cleaning problem? Explain.

d) Can you think of a ‘market-based’ solution to their bathroom cleaning problem? Explain.

Consider how health insurance affects the quantity of health care services performed. suppose that the typical medical procedure has a cost of $160, yet a person with health insurance pays only $40 out of pocket. her insurance company pays the remaining $120. (the insurance company recoups the $120 through premiums, but the premium a person pays does not depend on how many procedures that person chooses to undergo.) consider the following demand curve in the market for medical care. use the black point (plus symbol) to indicate the quantity of procedures demanded if each procedure has a price of $160. then use the grey point (star symbol) to indicate the quantity of procedures demanded if each procedure has a price of $40. q d at p=$160 q d at p=$40 0 10 20 30 40 50 60 70 80 90 100 200 180 160 140 120 100 80 60 40 20 0 price of medical procedures quantity of medical procedures demand if the cost of each procedure to society is truly $160, the quantity that maximizes total surplus is procedures. economists often blame the health insurance system for excessive use of medical care. given your analysis, the use of care might be viewed as excessive because consumers get procedures whose value is than the cost of producing them.