Question

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

Answer 1

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