1. Suppose Betty’s demand for physician visit is Quantity = 10- (0.2 x Price)

a). Draw Betty’s demand curve

b). What is the quantity demanded at a price of $10 per visit? $25?

c).At what price will she buy 4 visits? 8 visits?

d).If the government agrees to pay half of her health care bills, what would her quantity demand be at a price of $10 per visit? $25? Draw the

new, subsidized demanded curve.

e). What is the elasticity between a price of $5 and $6 per visit? Around a price of $30? Around a quantity demanded of 8 visits?

f). Calculate the elasticity of the new, half-subsidized demand at a price of $30 per visit and compare it with the elasticity you obtained from

the original demand curve. What is the new elasticity around 8 visits?

2. If the price of a postoperative follow-up visit is reduced from $40 to $30, the number of patients returning for follow-up increases from 18

to 25.

a). What is the marginal revenue (MR)?

b). What is the price elasticity?

c). What would your estimate of MR and price elasticity be if the quantity demanded moved from 18 to 20 (instead of 25)?

3. (a)Successful rehabilitation of a shoulder injury obviates the need for reconstructive surgery costing $6000. However, rehabilitation is

successful only 70% of the time. What is the expected value of rehabilitation?

(b). Treatment for endocarditis is risky. The patient will either die in the hospital, partially recover, or fully recover. With a full

recovery, the patient can expect to live for another 20 years, but only 25% of patients fully recover. With partial recovery, the patient can

expect to live 10 more years. However, 20% of patients die in the hospital. Assuming that patients usually live just one year without treatment.

What is the expected value of the treatment expressed as additional years of life?

References

Getzen, E.T. (2013). Health economics and financing. Hoboken, NJ: John Wiley & Sons, Inc.

PLEASE USE THE TEXT ABOVE ONLY AS A SOURCE.