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Suppose that the price elasticity for hip replacement surgeries is 0.

Suppose that the price elasticity for hip replacement surgeries is 0.3. Further suppose that hip replacement surgeries are originally not covered by health insurance and that at a price of $50,000 each, 10,000 such surgeries are demanded each year.

a. Suppose that health insurance begins to cover hip replacement surgeries and that everyone interested in getting a hip replacement has health insurance. If insurance covers 70 percent of the cost of the surgery, by what percentage would you expect the quantity demanded of hip replacements to increase? (Hint: Do not bother to calculate the percentage changes using the midpoint formula. If insurance covers 70.00 percent of the bill, just assume that the price paid by consumers falls 70 percent.)

This question was asked on Jan 16, 2013.

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