Question

Now, suppose that all consumers have health insurance. Health insurance allows consumers to see the doctor...

Now, suppose that all consumers have health insurance. Health insurance allows consumers to see the doctor at half price (ie- there is 50% coinsurance)

 Suppose that the market for doctor visits can be characterized by the following supply and demand equations: Q = 300 - P Q = 2P
10.5.

Problem Set #5 - Part II - 10.5 (E)

What is the price that consumers pay for a doctor visit? Assume that every visit is covered by insurance.
 A.  \$100 B.  \$200 C.  \$60 D.  \$50 E.  \$120

Solution:

Given  that

all consumers have health insurance.

Health insurance allows consumers to see the doctor at half price (ie- there is 50% coinsurance)

Q = 300 - P
Q = 2P

(10.5) Assuming that every visit is covered by insurance, the price that consumers pay for a doctor visit is:

option (E) : \$120

calculation:

Price paid by consumers decreases by 50%. So, price paid by them = P - 50% of P = P - (0.5P) = 0.5P
So, new demand is: Q = 300 - 0.5P

New equilibrium occurs where new demand = supply
So, 300 - 0.5P = 2P
So, 2P + 0.5P = 300
So, 2.5P = 300
So, P = 300/2.5

P = 120

Hence price that consumers pay for a doctor visit is: \$120

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