Demand Curve

timer Asked: Dec 15th, 2015

Question description

Consider the following information on John’s demand for visits per year to her health clinic, which is based upon the fact that his insurance does not cover clinical visits (that is, based upon a 100% coinsurance rate):















a.  John has been paying $30 per visit (V). How many visits does he “consume” per year? Draw his demand curve.

b.  Suppose now that his insurance company institutes a 70% coinsurance feature (that is, John pays 70% of the price of each visit). Show what happens to the demand curve. What is John’s new equilibrium quantity?

c.  Appraise this statement: Compared with a 70% coinsurance rate as in part (b), John’s price elasticity of demand would be even higher if the coinsurance rate was 60%. (No calculations are needed to answer this question, so don’t calculate elasticity!) 

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