Question

b. Assume that the market price for a physician visit is $400 per visit. A person has an insurance plan that has a $3200 per year deductible. Once this deductible is met, the person’s coinsurance rate goes from C = 1 to C = .25. For each of the following inverse demand curves, show graphically and calculate the amount of doctor visits that each person will choose during the year.

a. P = 1000-100Q

b. P = 600 –100Q

Answer 1

Hey

The answer of the following question is given below as follows:

First of all Let assume that

1) Market price for a physician visit is $400.for each visit

2) If a person has taken a insurance plan then $3200 per year will be deducted.

3) A person's company insurance rate will goes from .

C=1 to C ie 0.25.

Let's have a look on equilibrium at A.

The demand curve of the insurance P_{​​​​​​sA} = 1000-100 & the graph is shown by the line AB. With a co-insurance rate after the deductible amount of $3200 insurance , So if the co insurance rate is C= 0.25, So the price paid by A is.

P_{​​​​​}​​​​​​_{​​​​​​SA} = P _SA * 0.25= (1000-100 Q_{​​​​​​ A)}​​).

So therefore , P _SA=1/0.25 (1000-100Q_A).= 4000-400Q_{​​​​​​A}

So this is the demand curve line BC.

Now with the Doctor's fees ie $400 for per appointment, Consumer A would be demanded as

400=1000-100Q_A

Q_{​​​​​​A} = 6.

So now with the co- insurance C=25% rate assume the price is $400, so the consumer A will now have pay $25 per appointment, so the demand will be

4000-400Q_A =400.

Q_{​​​​​​A} =9.

graph on image.it will make you understand better.

Now the equilibrium at B.

So the demand curve of the insurance P_{​​​​​​SB} = 600-100Q_A

And the graph is illustrated by line AB. so with a co-insurance rate after the amount is deducted is $3200 insure so if the co-insurance rate is C=0.25, So the price paid by B is given below as follows.

P_{​​​​​​SB} = P_{​​​​​​SB} * 0.25 = (600-100Q_B ).

Hence, P_{​​​​​​SB} = 1/0.25 (600-100Q_B) = 2400-400Q_B.

So this is the demand curve line BC .

So with the applicable Doctor's fees is $400 per visit , Consumer B should demand.

400=600-100 Q_{​​​​​​B}

Q_{​​​​​​B} =2.

Now with a co-insurance rate ie C=25% rate , assume that the price is $400 , consumer B now have to pay

$25 per visit, so the demand is.

400-400Q_B = 400.

Q_{​​​​​​B} = 5.

I hope I have served the purpose well.

Thanks.

_​​