Suppose that in the absence of insurance, the inverse demand for office doctor visits is given...

Suppose that in the absence of insurance, the inverse demand for office doctor visits is given by the equation P1 = 150 - 30Q. Graph the demand curve. Graph the demand curve when the person has health insurance with a coinsurance rate of 25%. What is demand for visits with and without insurance when doctors receive $60/visit?

Solutions

Expert Solution

In the absence of Insurance, the inverse demand is given by,

P_D = 150 - 30Q. The demand curve for this is shown in the figure below as DD:

Let the Price received by the sellers = P_S. With coinsurance rate e, the price that consumers face is P_D = e*P_S

The coinsurance rate, e = 25% = 0.25. So, P_D = e*P_S

P_D = (0.25)*P_S = 150 - 30Q (Inverse demand equation)

P = (150 / 0.25) - (30 / 0.25) * Q

P = 600 - 120Q. Demand equation with coinsurance. We draw this demand curve in the figure below by line DD1.

Now, when doctors receive $60/visit i.e. P = 60

Then the demand is 60 = 150 - 30Q

Implies Q= 3.

Consumers will pay only $15 with a coinsurance rate of 25% i.e. 25% of 60 = 15

So, demand with co-insurance => P = 600 - 120Q

60 = 600 - 120Q

Q = 4.5

Demand for visits without insurance = 3

Demand for visits with coinsurance = 4.5

Rahul Sunny answered 1 year ago

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