Question

Assume a group of health economists want to determine the demand for doctor visits. To do so, they conduct an experiment in which they randomly assign 100 individuals a health insurance policy with a 15% copayment rate, and another 100 individuals a health insurance policy with a 30% copayment rate. Each doctor visit comes with a medical bill of $100. The researchers observe that among the 15% copayment group, 80 doctor visits are consumed; among the 30% copayment group, 70 doctor visits are consumed.

1) If the 15% copayment rate emerged first, followed by the 30% copayment rate, then what is the elasticity of demand? (Answer in terms of a number) 2) If the 30% copayment rate emerged first, followed by the 15% copayment rate, then what is the elasticity of demand? (Answer in terms of a number) 3) What is the arc elasticity of demand? (Answer in terms of a number)

Answer 1