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The public health director of a remote, rural area in northern Ontario has a discretionary budget of $500,000 and wants to spend it to save as many lives from obesity-related diseases as possible
The public health director of a remote, rural area in northern Ontario has a discretionary budget of $500,000 and wants to spend it to save as many lives from obesity-related diseases as possible. Two of the possible approaches being considered include: Prevention (through informative health campaigns on the adverse effects of junk food consumption) and a price subsidy on healthier food choices (making these foods more affordable). Medical studies indicate the following results for the two alternatives: Prevention Price Subsidy Cost Cost Total Lives Saved Total Lives Saved $100,000 200,000 300,000 400,000 500,000 300 500 650 760 800 $100,000 200,000 300,000 400,000 500,000 100 275 325 350 360 Suppose the value of a life is worth $1 million. 23. The most cost-effective way of allocating the $500,000 budget is to spend it entirely on prevention. 24. If $500,000 of the budget was initially allocated for prevention but then $100,000 of that was reallocated to the price subsidy, then the net benefit of that marginal change would be $60 million.
Expert Solution
Answer 23.
To check which is the most cost-effective way of allocation the $ 500,000 budget, we can analyze the different combination of prevention cost, and price subsidy in the following manner:
|
Prevention cost |
Price Subsidy |
Total Lives saved |
Benefit |
|
$500,000 |
0 |
800 |
$800 million |
|
$400,000 |
$100,000 |
760+100=860 |
$860 million |
|
$300,000 |
$200,000 |
650+275=925 |
$925 million* |
|
$200,000 |
$30,0000 |
500+325=825 |
$825 million |
|
$100,000 |
$400,000 |
300+350=650 |
$650 million |
|
0 |
$500,000 |
360 |
$360 million |
*most cost-effective method.
From the table, it is clear that the budget allocation of $500,000 for prevention is not the best cost-effective because other combinations of prevention and price subsidy save more lives and give more benefits.
It is clear that the $300,000 allocation for prevention, and a $200,000 price subsidy is the most cost-effective of allocating the $500,000 budget. Hence, the given statement is False.
Answer 24.
When $500,000 is allocated for prevention, total saved lives=800. Hence, total benefit=$800 million.
But, when $100,000 is allocated to price subsidy and $400,000 to prevention, total saved lives= 100+760=860. Hence, total benefit=$860 million.
So, change in marginal benefit=$860 million-$800 million= $60 million.
Hence, the given statement is True.
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