Question

Price Controls for Medical Care. Consider a town where the equilibrium price of a doctor’s visit is $60 and the equilibrium quantity supplied is 90 patient visits per hour. For suppliers (doctors), each $1 increase in price increases the quantity supplied by two visits. For consumers, each $1 increase in price decreases the quantity demanded by one visit. Suppose that in an attempt to control the rising costs of medical care the government imposes price controls, setting a maximum price of $50 per visit.

a. Use a completely labeled graph to show the effects of the maximum price on (a) the quantity of visits to doctors and (b) the total surplus of the market.

Answer 1