exam
Health economics
1. In reaction to higher input costs, a physician decides to increase the average price of a visit by 5 percent. Will total revenues increase or decrease as a result of this action?
Use the concept of price elasticity to substantiate your answer.
THE ANSWER DPENDS ON THE VALUE OF ELASTICITY of demand. If demand is elastic then revenues will fall, whereas if demand is inelastic then revenues will rise. This is explained by the relation: change in revenues/ change in price= Q( 1+elasticity). If demand is elastic then the expression becomes negative so that price rises causes revenues to fall. When dmand is inelastic a price rise causes revenues to fall as the expression becomes negative.
2. Show graphically and explain verbally how a monopoly results in a deadweight loss. Also point out the redistribution that takes place in society because of monopoly.
The total of loss of consumer and producer surplus equals dead weight loss
3. In rent years, many elderly people have purchased Medigap insurance policies to cover a growing Medicare copayment. These policies cover some or all of the medical costs not covered by Medicare. Use economic theory (ex. Elasticity) to explain how the growth of these policies is likely to influence the demand for health care by elderly people.
Having a policy and demand for healthcare are positively related. A person who has a policy will like to get medical attention for the smallest of/minor medical problem. Greater is the coverage of the policy in terms of % of expenditures borne by the company, greater will be demand for health products.
1. In reaction to higher input costs, a physician decides to increase the average price of a visit by 5 percent. Will total revenues increase or decrease as a result of this action?
Use the concept of price elasticity to substantiate your answer.
THE ANSWER DPENDS ON THE VALUE OF ELASTICITY of demand. If demand is elastic then revenues will fall, whereas if demand is inelastic then revenues will rise. This is explained by the relation: change in revenues/ change in price= Q( 1+elasticity). If demand is elastic then the expression becomes negative so that price rises causes revenues to fall. When dmand is inelastic a price rise causes revenues to fall as the expression becomes negative.
2. Show graphically and explain verbally how a monopoly results in a deadweight loss. Also point out the redistribution that takes place in society because of monopoly.
The total of loss of consumer and producer surplus equals dead weight loss
3. In rent years, many elderly people have purchased Medigap insurance policies to cover a growing Medicare copayment. These policies cover some or all of the medical costs not covered by Medicare. Use economic theory (ex. Elasticity) to explain how the growth of these policies is likely to influence the demand for health care by elderly people.
Having a policy and demand for healthcare are positively related. A person who has a policy will like to get medical attention for the smallest of/minor medical problem. Greater is the coverage of the policy in terms of % of expenditures borne by the company, greater will be demand for health products.