For Assignment 1 I created an Engel curve, analyzing the relationship between per capita real disposable personal income and per capita personal consumption on health care in the United States between 1997 and 2015. It can be very hard to predict when someone will need to spend money on healthcare, because no one knows when they will become sick or get hurt, needing medical attention. However, I found it interesting to see throughout time if people were more willing to spend more on health care when people were better off.

 

From the sample, it shows a $1 increase in per capita real disposable personal income is expected to increase per capita personal consumption on health care by $0.39. Per capita real personal disposable income is statistical significant with a p-value of <.0001, it appears there is a relationship between per capita real personal disposable income and per capita health care consumption. The R^2 of .9258 supports this claim as it suggests the variation of the model explains a lot of the variation in per capita health care consumption. This is to be expected because as a person’s disposable income increases they are more likely to spend the money on health care when sick or hurt, than a person who doesn’t have as much money and may just deal with the illness or injury.

 

-realyd: Per Capita real personal disposable income

-health: per capita health care consumption

Looking at the Engel curve it is easy to see it is upward sloping, meaning as a person’s real personal disposable income increases, so does their consumption on health care. The Engel curve once again suggests that per capita health care consumption is a normal good. Overall with a high R^2 and realyd being statistically significant in this study, I believe per capita real personal disposable income to be a good determinant of per capita health care consumption.

Relationship between Per Capita Real Personal Disposable Income and Per Capita Health Care Consumption