Question

In: Economics

Suppose that Kylo Ren and Finn both need to visit the doctor after their battle. We...

Suppose that Kylo Ren and Finn both need to visit the doctor after their battle. We know that the demand for healthcare for Kylo Ren is given by:

PHCKylo Ren=500-10HC

while the demand for healthcare for Finn is given by:

PHCFinn=400-50HC

where HC represents the number of doctor’s visits that each individual goes on. Suppose that the price of healthcare is $200 per doctor’s visit. Each has a health insurance plan where the deductible is $1,000. They also each have a coinsurance rate of 30%.

How much healthcare does Kylo Ren consume WITHOUT health insurance? How much healthcare does Finn consume WITHOUT health insurance?

How much healthcare does Kylo Ren consume WITH health insurance (and is his consumption “distorted”)? How much healthcare does Finn consume WITH health insurance (and is his consumption “distorted”)?

If Kylo Ren DOES NOT buy health insurance, how many visits would he have to go on to make it worthwhile to buy the health insurance?

Expert Solution

With the demand function for health care for kylo Ren is PHCKYLO REN=500-10HC and

The same for finn is phcfinn=400-50HC

The both demand function implies that there is negetive relationship between Demand for healthcare and number doctor's visit that each individual goes on.

As the law of Demand saying other things being equal if the price of the commodity falls the quantity demended of it will rise and the price of the commodity rises its quantity demanded will decline.

Kylo Ren will consume 500-10HC*200

=500-2000HC

SO witout any health insurance kylo Ren will consume 2000 unit of healthcare service at the existing doctor visit cost

$200.

Like this way Finn without any heath insurance will consume 10000 unit of health care service at the existing doctor visit of $200

With health insurance of $1000 is being devided by per doctor visit rate that 5HC

in the above demand function will change with effect of insurance is equal to 500-5HC

500-2HC*200=500-400HC that is 400 unit of health care consuption by KYLO REN with insurance

Likewise Finn will consume 2000 unit of health care

If Kylo Ren does not have any insurnce then the coinsurance will help 30% that is $300 but to conclude this answer we need income of the Ren to decide He will buy insurance or not.

Rahul Sunny answered 2 years ago

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