Question

In: Economics

Suppose that the market for doctor visits can be characterized by the following supply and demand...

Suppose that the market for doctor visits can be characterized by the following supply and demand equations:

Q = 300 - P
Q = 2P
10.4.  

Problem Set #5 - Part II - 10.4 (D)

Now, suppose that all consumers have health insurance. Health insurance allows consumers to see the doctor at half price (ie- there is 50% coinsurance). How many doctors' visits occur?
A.  200
B.  150
C.  240
D.  120
E.  300

Solutions

Expert Solution

C. 240

Price paid by consumers decreases by 50%. So, price paid by them = P - 50% of P = P - (0.5P) = 0.5P
So, new demand is: Q = 300 - 0.5P

New equilibrium occurs where new demand = supply
So, 300 - 0.5P = 2P
So, 2P + 0.5P = 300
So, 2.5P = 300
So, P = 300/2.5 = 120

So, Q = 2P = 2*120 = 240

Rahul Sunny answered 1 year ago
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