As mentioned earlier, health,
like any other durable goods, generates a flow of services. These services
yield satisfaction, or what economists call utility. Your television set is
another example of a durable good that generates a flow of services. It is the
many hours of programming, or viewing services, your television provides that
yield utility, not the set itself.
As a good, health is desired
for consumption and investment purposes. From a consumption perspective, an
individual desires to remain healthy because she or he receives utility from an
overall improvement in quality of life. In simple terms, a healthy person feels
great and thus is in a better position to enjoy life. The investment element
concerns the relation between health and time. If you are in a positive state
of health, you allocate less time to sickness and therefore have more healthy
days available in the future to work and enhance your income or to pursue other
activities, such as leisure. Economists look at education from the same
perspective. Much as a person invests in education to enhance the potential to
command a higher wage, a person invests in health to increase the likelihood of
having more healthy days to work and generate income.
The investment element of
health can be used to explain some of the lifestyle choices people make. A
person who puts a high value on future events is more inclined to pursue a
healthy lifestyle to increase the likelihood of enjoying more healthy days than
a person who puts a low value on future events. A preference for the future
explains why a middle aged adult with high cholesterol orders a salad with
dressing on the side instead of a steak served with a baked potato smothered in
sour cream. In this situation, the utility generated by increasing the
likelihood of having more healthy days in the future outweighs the utility
received from consuming the steak dinner. In contrast, a person who puts a much
lower value on future events and prefers immediate gratification may elect to
order the steak dinner and ignore the potential ill effects of high cholesterol
and fatty foods.
Naturally, each individual
chooses to consume that combination of goods and services, including the
services produced from the stock of health, which provides the most utility.
The isolated relation between an individual’s stock of health and utility is
captured. Where the quantity of health, His measured on the horizontal axis and
the level of utility, U, is represented on the vertical axis. The positive
slope of the curve indicates that an increase in a person’s stock of health
directly enhances total utility. The shape of the curve is particularly
important because it illustrates the fundamental economic principle of the law
of diminishing marginal utility. This law states that each successive
incremental improvement in health generates smaller and smaller additions to
total utility; in other words, utility increases at a decreasing rate with
respect to health.
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