A consumer’s demand for a medical service is as follows: Q = 100 - PP where PP is the out-of-pocket price she actually faces. She is considering four different insurance options: uninsurance, full insurance, a 50% coinsuranceplan, and a copayment plan with a $25 copay. Assume this service has a list price of PL = $70. Calculate Q under each insurance plan. Calculate the amount of social loss under each insurance plan. Derive a general expression for social loss as a function of x and PL, where x is the copay amount under a copayment plan. For simplicity’s sake, assume x < PL. Derive a general expression for social loss as a function of y and PL, where y is the coinsurance rate.

Full Insurance: It refers to 100% coverage. It is comprehensive coverage that can help in replacing…

Answered: A consumer’s demand for a medical…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter30: Market Failure: Externalities, Public Goods, And Asymmetric Information

Section: Chapter Questions

Problem 15QP

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A consumer’s demand for a medical service is as follows:

Q = 100 - PP

where PP is the out-of-pocket price she actually faces. She is considering four different insurance options: uninsurance, full insurance, a 50% coinsurance

plan, and a copayment plan with a $25 copay.

Assume this service has a list price of PL = $70. Calculate Q under each insurance plan.

Calculate the amount of social loss under each insurance plan.

Derive a general expression for social loss as a function of x and P_L, where x is the copay amount under a copayment plan. For simplicity’s sake, assume x < P_L.

Derive a general expression for social loss as a function of y and P_L, where y is the coinsurance rate.

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