Suppose that the typical inverse demand for trips to the dentist by a patient is given by p=1000-200q. Assume that there are lots of patients. Dentists charge $400 per visit, either to the insurer or to the patient, and this represents their average cost per visit. If there is an insurer, it charges a premium which comes straight out of the wealth of consumers. Assume that the premium is fair and reflects use of dental visits by all consumers, not just the specific consumer. (a) Find the optimal number of visits that would happen in order to maximize consumer welfare less the costs of dentistry. (b) Suppose that the insurer covers 50% of the dental cost. Does this lead to an increase/decrease in consumer welfare (i.e. the sum of consumer surplus less premiums)? Show how much.

Suppose that the typical inverse demand for trips to the dentist by a patient is given by p=1000-200q. Assume that there are lots of patients. Dentists charge $400 per visit, either to the insurer or to the patient, and this represents their average cost per visit. If there is an insurer, it charges a premium which comes straight out of the wealth of consumers. Assume that the premium is fair and reflects use of dental visits by all consumers, not just the specific consumer. (a) Find the optimal number of visits that would happen in order to maximize consumer welfare less the costs of dentistry. (b) Suppose that the insurer covers 50% of the dental cost. Does this lead to an increase/decrease in consumer welfare (i.e. the sum of consumer surplus less premiums)? Show how much.

EBK HEALTH ECONOMICS AND POLICY

7th Edition

ISBN:9781337668279

Author:Henderson

Publisher:Henderson

Chapter12: Medicare

Section: Chapter Questions

Problem 4QAP

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