In 1988, Medicare cut the payment for open heart surgery by 2-15 percent. Answer the following questions: a. For thoracic surgeons, who perform open heart surgery, what is the income effect of this fee cut? b. What is the substitution effect induced by this fee cut, again for thoracic surgeons? c. What happens when the income effect dominates the substitution effect? Does an insurer realize savings from a fee cut when the income effect dominates the substitution effect? Explain your answer. Suppose you were director of your country's national health insurance program. What public policies would you implement if you knew that the income effect dominates the substitution effect? Please answer all parts
In 1988, Medicare cut the payment for open heart surgery by 2-15 percent. Answer the following questions: a. For thoracic surgeons, who perform open heart surgery, what is the income effect of this fee cut? b. What is the substitution effect induced by this fee cut, again for thoracic surgeons? c. What happens when the income effect dominates the substitution effect? Does an insurer realize savings from a fee cut when the income effect dominates the substitution effect? Explain your answer. Suppose you were director of your country's national health insurance program. What public policies would you implement if you knew that the income effect dominates the substitution effect? Please answer all parts
Chapter5: Demand For Health And Medical Care
Section: Chapter Questions
Problem 9QAP
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In 1988, Medicare cut the payment for open heart surgery by 2-15 percent. Answer the following questions:
a. For thoracic surgeons, who perform open heart surgery, what is the income effect of this fee cut?
b. What is the substitution effect induced by this fee cut, again for thoracic surgeons?
c. What happens when the income effect dominates the substitution effect? Does an insurer realize savings from a fee cut when the income effect dominates the substitution effect? Explain your answer. Suppose you were director of your country's national health insurance program. What public policies would you implement if you knew that the income effect dominates the substitution effect?
Please answer all parts
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