Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 5.5, Problem 2ST
To determine
The impact of a subsidy on the price.
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Demand for medical services is price inelastic (Absolute value of price elasticity of demand is less than 1 and greater than zero). Medical services are different from most other goods and services in that the person who determines the demand (the patient) is not the person who makes the payment (payment is made by the insurance company). How does this affect the price elasticity of demand for medical services (increase it or decrease it)? You may assume that this question only refers to people who have health insurance. Ignore co-payments and deductibles and any other out-of-pocket expenses. Please give an explanation.
Suppose you are collecting data from a country like Japan where the government sets the price of healthcare. Each prefecture in Japan has a different set of prices (for example, Tokyo has higher prices than rural Hokkaido). Data for 1999 are displayed in the table below.
Region
Outpatient Visits per Month
Price per Visit
Tokyo
1.25
25
Hokkaido
1.75
15
(4 points) What is the arc price elasticity of demand for health care consumers in
Japan (using only these data)?
(4 points) Suppose that incomes are generally much higher in Tokyo than Hokkaido.
Is your answer to the last question an overestimate or underestimate of
price elasticity? Justify your answer.
(c) (4 points) Using your estimated elasticity, what would the demand for health care
be if the price in Tokyo were raised to 30 per visit? What would the
demand in Hokkaido be if the price were lowered to 5 per visit?
Give typing answer with explanation and conclusion
Suppose that a consumer’s demand curve for medical care is QD = −3P +17 with P = $5. Suppose that the beneficiary obtains an insurance plan through an insurer with a 25% coinsurance rate. Under the insurance arrangement, find the following:
(a) Equilibrium price and quantity of medical care?
(b) Magnitude of deadweight loss?
(c) Cost to the beneficiary?
(d) Cost to the insurer?
Chapter 5 Solutions
Economics (MindTap Course List)
Ch. 5.1 - Prob. 1STCh. 5.1 - Prob. 2STCh. 5.2 - Prob. 1STCh. 5.2 - Prob. 2STCh. 5.3 - Prob. 1STCh. 5.3 - Prob. 2STCh. 5.4 - Prob. 1STCh. 5.4 - Prob. 2STCh. 5.5 - Prob. 1STCh. 5.5 - Prob. 2ST
Ch. 5.6 - Prob. 1STCh. 5.6 - Prob. 2STCh. 5.7 - Prob. 1STCh. 5.7 - Prob. 2STCh. 5.8 - Prob. 1STCh. 5.8 - Prob. 2STCh. 5.9 - Prob. 1STCh. 5.9 - Prob. 2STCh. 5.10 - Prob. 1STCh. 5.10 - Prob. 2STCh. 5.11 - Prob. 1STCh. 5.11 - Prob. 2STCh. 5.12 - Prob. 1STCh. 5.12 - Prob. 2STCh. 5 - Prob. 1QPCh. 5 - Prob. 2QPCh. 5 - Prob. 3QPCh. 5 - Prob. 4QPCh. 5 - Prob. 5QPCh. 5 - Prob. 6QPCh. 5 - Prob. 7QPCh. 5 - Prob. 8QPCh. 5 - Prob. 9QPCh. 5 - Prob. 10QPCh. 5 - Prob. 11QPCh. 5 - Prob. 12QPCh. 5 - Prob. 13QPCh. 5 - Samantha is flying from San Diego, California to...Ch. 5 - Prob. 15QPCh. 5 - Prob. 16QPCh. 5 - Prob. 1WNGCh. 5 - Prob. 2WNGCh. 5 - Prob. 3WNGCh. 5 - Prob. 4WNGCh. 5 - Prob. 5WNGCh. 5 - Prob. 6WNG
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- Assume a consumer's demand for a medical service is as follows: Q = 100 - Pp where Pp is the out-of-pocket price she actually faces. She is considering four different insurance options: uninsurance, full insurance, a 50% coinsurance plan, and a copayment plan with a $25 copay. Assume this service has a list price of PL = $70. Calculate Q under each insurance plan. Please fill in the final answer without showing the middle steps (a number only, without any extra space, symbol, word, etc.) If the customer is uninsured, Q= • If the customer is fully insured, Q= • If the customer has a 50% coinsurance plan, Q= • If the customer has the copayment plan, Q=arrow_forwardSuppose you have an insurance plan in which you pay the market price for medical care until you meet a deductible of $1,000, after which you have a coinsurance rate of .20. Answer parts a and b assuming your inverse demand curve for medical care is P = 400 – 10Q and the market price for medical care is $200 per unit.a) Graph the price line and your demand curve. On the graph, label the values of the x and y intercepts of the demand curve, the quantity where you meet the deductible, the horizontal sections of the price line, and the point(s) where the demand curve intersects the price line.b) Find the number of units of medical care that you will demand. Show all calculations that youperformed in your analysis.arrow_forwardExplain how each of these situations will affect the quantity demanded of health insurance: a) A reduction in the tax-exempt fraction of health insurance premiums. b) An increase in buyer income. c) An increase in per capita medical expenses.arrow_forward
- The UN Committee on Economic, Social, and Cultural Rights (CESCR) is charged with interpreting the International Covenant on Economic, Social, and Cultural Rights (ICESR). In 2000 the Committee released General Comment 14, “The Right to the Highest Attainable Standard of Health”. The General Comment is important for advancing our understanding of a right to health under international law because it: (choose one) A) Sets out what has become known as the “3AQ model” addressing the conditions for health on the basis of Availability, Accessibility, Acceptability, and Quality. B) Creates new, specific obligations with respect to the delivery health care services that are binding on all countries of the world C) Makes it clear that the absence of a right to health in the Canadian Charter or Rights and Freedoms means that Canada is in clear violation of its obligations under the ICESR. D) Offers an account of a right to health that has been used by health advocates around the world E) A, B…arrow_forwardSuppose you have two persons, one with more elastic demand for medical care than the other. If they both obtain identical health insurance coverage (or both have their % of costs paid by insurance increased), whose demand will be affected most? Given what you know about relative demand for MC for well vs. ill individuals, more educated vs. less educated persons, and wealthy vs. less wealthy individuals, which of each pair will have the greatest increase in demand under health insurance?arrow_forwardDemand studies in health care have provided estimates of both income and price elasticity. Estimates of income elasticity are usually above +1.0. Estimates of price elasticity typically range between -0.1 and -.75 (with hospital services at the lower end and elective services at the upper end). What information do these estimates convey? What does the price elasticity of demand estimates imply for government policymakers, insurance companies, and medical providers' decisions? What does the income elasticity of demand estimates imply for government policymakers, insurance companies, and medical providers' decisions?arrow_forward
- How do fee-for-service and capitation payment systems affect the amount of medical care the patient receives relative to the optimum amount that would be provided by the “perfect” agent? Under which system we expect to see more supplier-induced demand?arrow_forwardSuppose the government imposes a system of price ceilings in the health care industry as part of an overall health care reform bill. a) draw a graph of the health care market and show equilibrium price and quantity. b) assume the government imposes an effective price ceiling in the health care market. Show the price ceiling in your graph. Indicate what will happen to quantity demanded and quantity supplied of health over time ? c) would a shortage or surplus result ? I llustrate in your graph.arrow_forwardSuppose the government imposes a system of price ceilings in the health care industry as part of an overall health care reform bill. a) what happens to the amount of market exchange ? b) explain the impact of the price ceiling on efficiency c) who bears the cost of the regulation?arrow_forward
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