Question

PART I

Demand and supply of office visits with cardiologists in Fairfax (market period: 1 week)

Assume no insurance

Price                           Demand                                  Supply

140                              1000                                        1375                                       

130                              1100                                        1350

120                              1200                                        1325

110                              1300                                        1300

100                              1400                                        1275

90                              1500                                        1250

80                              1600                                        1225

70                              1700                                        1200

60                              1800                                        1175

50                              1900                                        1150   

1. Graph demand (D1) and supply (S1) and determine the market price/quantity equilibrium. (use the graph at the end of the assignment, or if you use another be sure to use one with a grid so you can plot accurately. Be sure to label all demand and supply curves).

2. Over the next 5 years due to population growth and an aging population, demand for cardiology office visits increases by 25 percent. The supply of cardiologists increases by 10 percent as medical schools expand a little and a small number of additional doctors from foreign countries are certified to practice in the U.S. Graph the new demand curve (D2) and the new supply curve (S2). What is the new price/quantity equilibrium?

3. What was the percentage increase in the price of cardiology office visits over this five year period? Show your work

4. What was the percentage increase in the quantity of office visits? Show your work

5. Based on the demand schedule shown above (D1), calculate the Price Elasticity of Demand between a price per office visit of $80 and $90. Use the midpoint formula as shown in class or the arc elasticity formula as shown in the textbook. Show your work.   

6. Based on your answer in #4, would you expect prices to trend upwards or downwards between a price of $80 and $90 if individual doctors have some control over setting their own prices. Explain in brief.

7. Based on the demand schedule shown above, calculate the Price Elasticity of Demand between a price per office visit of $120 and $130. Show your work.

8. In one sentence describe what your answer means. Be specific. (imagine that you have to describe it to someone who does not know economics)

9. Why is there a different elasticity coefficient at a higher price compared to the lower price, even though the demand curve is a straight line? (Think about how we calculate elasticity).    

10. If the price elasticity of demand for milk is 3.2 between a price of $3.00 and $3.50, and if consumers are now buying 1000 gallons per day at a price of $3.25, how many gallons of milk will be bought per day if the price goes down to $3.00?

Answer 1