Question

suppose that in the absence of insurance, the inverse demand for office doctor visits is given by the equation P=150 - 30Q.
a. Graph the demand curve.
b. graph the demand curve when the person has health insurance with a coinsurance rate of 25%.
c. what is demand for visits with and without insurance when doctors receive €60/visit?

Answer 1

From question, P=150—30Q

   Or 30Q=150—P

   Q=5—1/30 P

​​​​​​a.......... When P=0 Q=5 (the horizontal intercept)

   and when Q=0 P= 150 (the vertical intercept)

​​​​​Now we can draw a demand curve very easily,

b....... Now demand curve with a health insurance with 25 %coinsuranse rate Demand ccurve will change now ​​, we know that amount above the coinsuranse rate is paid by the insurance company.

​​​​​​So, coinsuranse rate (C) =25% =0.25

​​​​​New demand function, P=150 /c —30Q/c = 150/0.25 —30Q/0.25

   P=600—120Q

​​​Here when Q=0 then P=600​​​​​ and when P=0 then Q=5

​​​​​We can draw the demand curve with a health insurance with 25 %coinsuranse rate with this new demand function.

​​​​​​​C....... Now we have demand function with and without insurance, so putting the price (€60)in bboth the functions ​​​​, we can find out the desired value

​​​​​​Without insurance Q= 5-1/30P =5—(1/30) ×60 = 3 answer

​​​​​​With insurance P =600—120Q so Q= 600/120 —1/120 P

   Q=5—(1/120) ×60 =4.5 answer.

​​​​​Diagrams of a and b