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In: Economics

Careforall, The mayor of sickcity, claimed that his residents are very elastic and highly sensitive when...

Careforall, The mayor of sickcity, claimed that his residents are very elastic and highly sensitive when the price of preventative care changes but not so sensitive when the price of inpatient care changes. To prove her point she referred back to the RAND studies. She claimed that the results of a replicated study in her town are shown below

Plan Average # of preventative care visits Average # of inpatient visits

Free 3.2 0.126

25% 2.54 0.122

50% 2.10 0.118

Find the price elasticity of demand for preventative care in Sickcity. round to 3 digits after the decimal

Solutions

Expert Solution

Plan Average number of preventive care visits

0 3.2

25% 2.54

50% 2.10

To find - Price elasticity of demand

we know Price elasticity of demand = %change in demand / % change in price

We have from 25% to 50% , %percentage change in price = 50 - 25 = 25%

% change in demand =( (2.10-2.54) / 2.1)* 100 = -20.95

Price elasticity of demand = -20.95 / 25 = - 0.838

Rahul Sunny answered 2 years ago
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