Question

Ralph has a demand curve for office visits (Qd) to the doctor in a year given by Qd = 20 – (P/10) where P is the price of an office visit for Ralph.

If the list price of an office visit is $50 and Ralph purchases health insurance in which he has a coinsurance rate of 20% (so Ralph pays only $10 for each visit), how many additional office visits at a list price of $50 does Ralph make relative to when he did not have insurance?

Answer 1

In absence of insurance plan, Ralph pays a fee of $50 per visit. Number of visits, Ralph makes at this price can be estimated by using his demand curve

Qd=20-(P/10)=20-(50/10)=15

Now, in case of insurance, cost per visit will be 20% of $50 i.e. $10.

So, Number of visits, Ralph makes at a price of $10 can be calculated as

Qd=20-(P/10)=20-(10/10)=19

Number of additional visits in case of insurance=19-15=4