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7. Subsidised exercise. The disease diabetes 2 is an ever increasing problem in Denmark and throughout the Western world. It has turned out that mild versions of the disease may be treated by daily exercise, but it is difficult to get people to exercise. They will come up with all manner of excuses from lack of time to the unpleasant sweating and smelling that you exude after having exercised. As a consequence, subsidising exercise has been considered. So far this model has been tried in Sweden with a good result, but Denmark is considering introducing a similar system. The demand curve for exercise may be described as: P=200-5Q Where Q represents the monthly hours of exercise while P represents the discomfort from exercise by the hour. If you are greatly discomfited by exercise, you will exercise as little as possible, and if you are only discomfited to a relatively small degree, you will exercise a lot. The costs of exercise are an expression of what you might do instead of exercising, and it is clear that if you have to do a lot of exercise, you will miss many other activities, so the costs may be described as: MC=20+Q To this should be added the mentioned considerable advantages to society from the exercise, since you avoid all the additional complications associated with diabetes. Society’s advantages from having people exercise may be described as: P=100-0,5Q, as there are great advantages to be had from the first hours of exercise and fewer advantages to be gained from additional hours of exercise. It is assumed that the market for exercise is characterised by perfect competition, so you are to: • Compute the private optimum, i.e. private price, quantity and contribution margin. • Compute the social optimum, i.e. social price, quantity and contribution margin. In order to get people to exercise more, subsidising exercise has been considered. This would mean that on application to the local social services administration you may have your cost of exercising at a gym covered by more than 100%, which means that there is even some income to be gained from exercising. • You are to compute the subsidies at which the public sector is to refund expenditure on exercise in order to shift from the private to the social optimum. Compute and illustrate the social loss of deadweight to society if you are in the private rather than the social optimum. 8. Obesity tax. As everyone knows, obesity is one of the greatest social problems in Denmark. Over time almost everything has been tried to get people to eat healthy food and take exercise, but it has not worked and the number of obese citizens is increasing heavily. Finally, the authorities approach Niels Lauritzen, MSc. in economics, who after considering the matter for 10 minutes says: ”If economic incentives are effective within all types of areas, they will also work for obesity”, and he therefore suggests an obesity tax, which quite simply means that people must pay tax depending on their BMI. If their (Body Mass Index) is over 25, they must pay tax to the government, as obese people are a burden to the public health system in the same way that drivers are a burden to the road system. • Using demand and supply curves you are to illustrate how such an obesity tax may reduce the number of obese people and cause a shift from private towards social equilibrium. 43 minutes ago - 3 days left to answer.
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Everything mentioned above is determined by the amount of cost-benefit and supply and demand.