5. Tax Subsidy for Employer Provided Insurance
Insurance Option
Marginal Product of Labor
Insurance Provided by Employer
Pre-tax Income (20% tax rate)
After-tax Income
Privately Purchased Insurance
Income Left for Other Consumption
Privately Purchased
$50,000
$40,000
$5,000
$35,000
Employer Provided
$50,000
$5,000
$45,000
$36,000

6. $100 S=MC $10 D Q1 Q2 Price of each visit Number of visits
to doctor’s office Q1 Q2

7. $ of Marginal Health Benefits$5 B $1 C
$0.10
$1,000
$2,000
$5,000
$ of Medical Spending