432review%20question%20exam%202[2]

# 432review%20question%20exam%202[2] - D r Westerhold Econ...

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Dr. Westerhold Econ 432 Review question on health care and moral hazard: Assume a patient’s demand for medical services is given as P=\$200-2.5Qd and the marginal cost (MC) of medical services is \$150. Construct a graph showing the market for medical services labeling the relevant intercepts. A. Determine the quantity of medical services consumed and the price per unit in a market with no insurance. Show this on your graph.

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B. What is total expenditures on medical services? C. Assume insurance is available in this market with a co-insurance rate of30%. Show the impact on the market for medical services by determining the quantity of medical services consumed and the price per unit of medical services. D. What are total expenditures on medical services? How much does the patient pay
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Unformatted text preview: out of pocket? How much does the insurance company pay? E. Does insurance lead to an efficient consumption of medical services? Briefly explain. F. Show the area of deadweight loss and determine its dollar value. Answers: A. Set P=MC; Q=20 units; P=\$150. B. Total expenditures will be \$3,000. C. Set .30P=MC; Q=62 units; P=MC of firm=\$150 but Price paid by patient is \$45 D. Total expenditure is \$9300; insurance pays \$6510; patient pays \$2790; E. Insurance leads to overconsumption (MB at 62 units is \$45 but the MC is \$150) creating a deadweight loss. F. Area is triangle between two quantities, above demand and is valued at \$2205....
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• Spring '10
• Jannett
• Economics, \$200, \$45, \$3,000, \$2205, E. Insurance

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