Suppose that Elaine’s demand for doctor visits per year is given by the equation: P = 250 – 20Q, where Q is the number of doctor visits and P is the price. The marginal cost of providing this service is fixed at $130 per patient. What is the efficient level of visits per year? What would be the total cost to provide the efficient level of visits? On a supply/demand graph, illustrate this situation; label the efficient levels from part (a). If Elaine obtains insurance with no deductible and a copayment of $10 per visit, how many times would she visit the doctor per year? In total, how much does Elaine pay out of pocket for her visits and how much does the insurer have to pay? Calculate the deadweight loss resulting from the insurance policy and show this region on your graph. What happens to the size of the deadweight loss as the copayment increases? Briefly explain why the insurance policy can induce moral hazard.
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Suppose that Elaine’s
demand for doctor visits per year is given by the equation: P = 250 – 20Q, where Q is the number of doctor visits and P is the price. The marginal cost of providing this service is fixed at $130 per patient.-
What is the efficient level of visits per year? What would be the total cost to provide the efficient level of visits?
-
On a
supply/demand graph, illustrate this situation; label the efficient levels from part (a). -
If Elaine obtains insurance with no deductible and a copayment of $10 per visit, how
many times would she visit the doctor per year?
-
In total, how much does Elaine pay out of pocket for her visits and how much does the insurer have to pay?
-
Calculate the
deadweight loss resulting from the insurance policy and show this region on your graph. What happens to the size of the deadweight loss as the copayment increases? -
Briefly explain why the insurance policy can induce moral hazard.
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