12 Demand elasticity and social loss. Consider two vaccines for different viruses X and 2. Assume that the marginal cost of producing both drugs is constant and that the fixed cost is small. In other words, assume that the supply curve for both drugs is flat. a Suppose that demand for vaccine y is price elastic, whereas demand for vaccine 2 is relatively inelastic. Plot the private demand curve for both drugs on separate axes.
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- 12 Demand elasticity and social loss. Consider two vaccines for difffferent viruses χ and Ω Assume that the marginal cost of producing both drugs is constant and that the fixed cost is small. In other words, assume that the supply curve for both drugs is flat. a Suppose that demand for vaccine χ is price elastic, whereas demand for vaccine Ω is relatively inelastic. Plot the private demand curve for both drugs on separate axes. b For the sake of example, assume that both viruses have the same externality. Plot the social demand curve for both drugs and label the social loss in each case. c Explain intuitively why, all else equal, social loss is greater in the case of elastic demand than it is in the case of inelastic demand.)a-Ali receives utility from the Korean vaccine(K) and American vaccine(V) that he receives in thefollowing format: U=K*VPv=200Pk=160I=8000After the Korean vaccine price goes up to 250 TL, as there is increased international competition toreceive it what is the compensation the Turkish government needs to offer for the individual`s utility tostay constant?b)With the Korean vaccine price going up to 250 TL, please differentiate the substitution vs incomeeffect of this price increase. Is the vaccine a normal good or an inferior good?c) Individuals gain utility from two things: leisure(N) and numeraire good consumption(C). In their youththey maximize:U1(N1, C1) = (N)1/2 (C)1/2Budget constraint should be constructed in the following way: With 24 hours of work, you buy leisurehours, and the numeraire good, which has a price of 1. If you get an hourly wage rate of w,Please set up the Lagrangian for utility maximization. Solve for w=10, your labor decision for the firstperiod.d-Let us assume…Suppose a company has invented and patented a new effective drug to treat hay fever. The marginal cost of producing the drug is: MC = $4 . Without being covered in any insurance plan, the market demand is as follows: Qd = 800 -40P a. Suppose the drug is covered by a public health insurance plan with a co-insurance rate of 25% and everyone is eligible. What is the market demand under this insurance policy? What price should the company charge and what is the equilibrium quantity? a. Suppose now the public health insurer introduces the payment limit of $7.5 per unit of the drug; that is, the co-insurance rate of 25% applies if P less than or equal 10 (P<= 10), but the insurance only pays $7.5 per unit if P is greater than 10 P>10). Derive the new market demand. Under this new market demand, what price should the firm charge? Justify your answer.
- Suppose there are two types of people, high risk (H) and low risk (L) with utility function U(c) = c0.5 Each has income (=consumption) of $100. The high risk people are 10% of the population and have a 75% chance of getting cancer in which case their income would be zero. The low risk people are the remainder of the population and have a 25% chance of getting cancer and hence zero income. The private insurance industry is perfectly competitive. (a) Suppose private insurers are able to distinguish the two types. What market price would emerge for each risk type? How much insurance would each type purchase?10. A deductible reduces ________ in exactly the same way as ________. Question 10 options: a) moral hazard; cancellation of insurance b) moral hazard; coinsurance c) adverse selection; restrictive provisions d) adverse selection; limits on the amount of insuranceAn insured is employed by a manufacturing company that provides group health coverage for its employees and their dependents. If the insured dies, the company must allow theinsured's spouse and children to continue their group heallh coverage for a maximum of how many moriths according to COBRA? 36 B.18 C.12 D.6
- True/False: If a health insurance company could somehow monitor everything a customerdoes and thinks, it could create a full-insurance contract with no moral hazard. X. When is the social loss the lowesta. A 20% coinsurance and high deductibleb. A 20% coinsurance and low deductiblec. A 20% coinsurance, low co-pays and high deductibled. A 20% coinsurance, high co-pays and high deductible XI. Calculate the out of pocket spending in the following insurance plan - A co-pay for $20,coinsurance of 0% and deductible of 500. Assume that the doctor’s visit cost $1000a. 520b. 500c. 820d. 800 XII. Which of the following is not an example of adverse selectiona. Increasing use of health care for health services like preventive care servicesb. Developing asthma that is the outcome of a mining jobc. Not reporting a hereditary heart disease when signing up for insuranced. Increasing the number of cigarettes smoked once you get employer based healthinsurance Please answer all 3 questions. ThanksSuppose that an individual's demand curve for doc-tor visits per year is given by the equation P = 500- 25Q, where Q is the number of doctor visits peryear and P is the price per visit. Suppose also thatthe marginal cost of each doctor visit is $100.a. How many visits per year would be efficient?What is the total cost of the efficient numberof visits?b. Suppose that the individual obtains insur-ance. There is no deductible, and the coin-surance rate is 50 percent. How many visitsto the doctor will occur now? What are theindividual's out-of-pocket costs? How muchdoes the insurance company pay for this individual's doctors' visits?c. What is the deadweight loss (if any) causedby this insurance policy?The market inverse supply curve for amoxicillin, an antibiotic with lots of generics, isrepresented by the equation P = 3 + 0.0006QS. The market demand curve is represented byQD = 187,500 − 625P.It is well known that antibiotic use generates negative externalities. How might thegovernment restrict the use of antibiotics? Show this on a demand-supply graph. Thendiscuss a potential unintended consequence of the government’s intervention.
- What are the perceived private costs and benefits of taking a COVID vaccine from the perspective of the following groups? (These will likely differ by group but there can be costs and benefits for both groups). Do these benefits outweigh the costs for each group? a. People willing to take the vaccine. b. Vaccine-hesitant individuals.Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for poor quality used cars is $10,000. Assume a potential used car buyer has imperfect information as to the condition of any given used car. Assume this potential buyer believes the probability a given used car is good quality is .60 and the probability a given used car is low quality is .40. Assume the seller has perfect information on all cars in inventory. How does the informational imbalance result in adverse selection? a. The expectedprice offered by the buyer encourages the seller to sell a poor quality car. Hence only poor quality cars are sold, which harms sellers. b. The expected price offered by the buyer encourages the seller to sell a good quality car. Hence only good quality cars are sold, which harms buyers. c. The expected price offered by the buyer encourages the seller to sell a good quality car. Hence only good quality cars are sold, which harms sellers. d. The…Do market demand curves reflect positive externalities? Why or why not?