160PART THREESUPPLY AND DEMAND II: MARKETS AND WELFARE9.Consider how health insurance affects the quantity ofhealth care services performed. Suppose that the typicalmedical procedure has a cost of $100, yet a person withhealth insurance pays only $20 out-of-pocket when shechooses to have an additional procedure performed.Her insurance company pays the remaining $80. (Theinsurance company will recoup the $80 through higherpremiums for everybody, but the share paid by thisindividual is small.)a.Draw the demand curve in the market for medicalcare. (In your diagram, the horizontal axis shouldrepresent the number of medical procedures.) Showthe quantity of procedures demanded if eachprocedure has a price of $100.b.On your diagram, show the quantity of proceduresdemanded if consumers pay only $20 perprocedure. If the cost of each procedure to society istruly $100, and if individuals have health insuranceas just described, will the number of proceduresperformed maximize total surplus? Explain.
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