**Understanding Consumer Demand for Office Visits***Problem Statement:*Suppose that a consumer’s annual demand for office visits is described by the equation $ Q = 8 - 0.1p $.1. **Scenario 1: Full Price Payment** - If office visits cost $30, and the consumer has no health insurance (i.e., the consumer pays full price), how many office visits will she make? - What is the price elasticity of demand for office visits at this point?2. **Scenario 2: Partial Payment with Health Insurance** - Suppose a health insurance plan is instituted that pays for one-third of each office visit. - How would this affect the quantity and the demand elasticity at the new equilibrium?*Explanation:***Step-by-Step Analysis:**1. **Determine the Demand with Full Price Payment:** - Use the given demand equation $ Q = 8 - 0.1p $. - Substitute $ p = 30 $ to find $ Q $. \[ Q = 8 - 0.1 \times 30 \] \[ Q = 8 - 3 \] \[ Q = 5 \] - The consumer will make 5 office visits annually if they pay the full price of $30 per visit.2. **Calculate Price Elasticity of Demand:** - Price elasticity of demand ($ E $) is calculated using the formula: \[ E = \left( \frac{dQ}{dp} \right) \left( \frac{p}{Q} \right) \] - In this case, the derivative of $ Q $ with respect to $ p $ is $\frac{dQ}{dp} = -0.1 $. \[ E = (-0.1) \left( \frac{30}{5} \right) \] \[ E = -0.1 \times 6 \] \[ E = -0.6 \] - The price elasticity of demand at this point is -0.6, indicating inelastic demand.3. **Impact of Health Insurance (Partial Payment):** - With health insurance, the consumer pays one-third of the price per visit. Therefore, the new price paid by

Both the demand and supply bend show the connection between price and the number of units demanded…

Suppose that a consumer's annual demand for office visits is described by the equation Q = 8 -0.1p If office visits cost $30, and the consumer has no health insurance (i.e., the consumer pays full price), how many office visits will she make? What is the price elasticity of demand for office visits at this point? Suppose a health insurance plan is instituted that pays for one-third of each office visit. How would this affect the quantity and the demand elasticity at the new equilibrium?

Suppose that a consumer's annual demand for office visits is described by the equation Q = 8 -0.1p If office visits cost $30, and the consumer has no health insurance (i.e., the consumer pays full price), how many office visits will she make? What is the price elasticity of demand for office visits at this point? Suppose a health insurance plan is instituted that pays for one-third of each office visit. How would this affect the quantity and the demand elasticity at the new equilibrium?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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