Health Economics
14th Edition
ISBN: 9781137029966
Author: Jay Bhattacharya
Publisher: SPRINGER NATURE CUSTOMER SERVICE
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Question
Chapter 2, Problem 2E
To determine
The acceptability of the given statement.
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In the presence of insurance coverage, over the counter purchases of drugs like acetaminophen, ibuprofen and naproxen sodium will have a higher elasticity of demand than physician prescribed drugs.
True
False
Indicate whether the statement is true or false, and justify your answer.Unlike the usual measure of elasticity, an arc elasticity can be calculated from just one price–quantity data point.
Designers of National Health Insurance proposals have been greatly concerned with
a number of questions. What would happen to the quantity of various services
demanded if prices to patients were cut to zero or were cut 75 percent? Knowledge
of elasticities is crucial to answering these questions. In a recent study of the
demand for dental care, Manning and Phelps estimated price elasticities separately
for adult females, adult males, and children. Their results were as follows:
a.
b.
C.
d.
Service
Cleanings
Fillings
Extractions
Examinations
Dentures
Crowns
Orthodontia
Adult Females
.79
.58
-.21
.56
.59
-.54
Adult Males
.14
.73
1.51
.03
-2.20
-.89
Children
1.34
.95
.97
.59
1.70
.08
Source: W.G. Manning, Jr. and C.E. Phelps, "The Demand for Dental Care,"
The Bell Journal of Economics, Autumn 1979, pp. 503-525.
If prices to all patients were cut, would expenditure on examinations rise or
fall? Why? {Note: Negative entries in the table refer to Giffen goods.}
For which service would a…
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- Verizon Wireless recently ran a pricing trial to estimate the elasticity of demand for its services. The manager selected three states that were representative of its entire service area and increased prices by 5% to customers in those areas. One week later, the number of customers enrolled in Verizon’s cellular plans declined 4% in those states, while enrollments in states where prices were not increased remained flat. The manager used this information to estimate the price elasticity of demand for Verizon and, based on her findings, immediately increased prices in all market areas by 5% in an attempt to boost the company’s 2020 annual revenues. One year later, the manager was perplexed because Verizon’s 2020 annual revenues were 10% lower than those in 2019: the price increase apparently led to a reduction in the company’s revenues. Did the manager make an error? Explain.arrow_forwardFind the point advertising elasticity of demand of a medical supplier if the business spent 10,000 from the previous budget of 8,000 and the sales increased from 100000 to 200000.arrow_forwardQuestion 12 In order to bring to South Korea a Therapy-based mental health app, you first need to roughly estimate your market demand. Your market research (country report) yields the following statistics: -Therapy mental health app users in China: 30M -Total adult population in China: 1.2B -Total adult population in Korea: 40M -Smartphone ownership in Korea: 94% -At least "somewhat interested" in mental health products in Korea: 30% -Currently using similar apps (mediation or mindfulness) in Korea: 4M According to the Analogy method, market demand estimate could be: 4M 30M/3 = 10M (because Korean population is one third of the Chinese population) 30M Both options 1) and 2)arrow_forward
- Suppose you have two persons, one with more elastic demand for medical care than the other. If they both obtain identical health insurance coverage (or both have their % of costs paid by insurance increased), whose demand will be affected most? Given what you know about relative demand for MC for well vs. ill individuals, more educated vs. less educated persons, and wealthy vs. less wealthy individuals, which of each pair will have the greatest increase in demand under health insurance?arrow_forwardRecently, Pacific Cellular ran a pricing trial in order to estimate the elasticity of demand for its services. The manager selected three states that were representative of its entire service area and increased prices by 5 percent to customers in those areas. One week later, the number of customers enrolled in Pacific’s cellular plans declined 4 percent in those states, while enrollments in states where prices were not increased remained flat. The manager used this information to estimate the own price elasticity of demand and, based on her findings, immediately increased prices in all market areas by 5 percent in an attempt to boost the company’s 2012 annual revenues. One year later, the manager was perplexed because Pacific Cellular’s 2012 annual revenues were 10 percent lower than those in 2011 - the price increase apparently led to a reduction in the company’s revenues. Did the manager make an error? Explain.arrow_forwardRecently, Verizon Wireless ran a pricing trial in order to estimate the elasticity of demand for its services. The manager selected three states that were representative of its entire service area and increased prices by 5 percent to customers in those areas. One week later, the number of customers enrolled in Verizon’s cellular plans declined 4 percent in those states, while enrollments in states where prices were not increased remained flat. The manager used this information to estimate the own price elasticity of demand and, based on her findings, immediately increased prices in all market areas by 5 percent in an attempt to boost the company’s 2012 annual revenues. One year later, the manager was perplexed because Verizon’s 2012 annual revenues were 10 percent lower than those in 2011—the price increase apparently led to a reduction in the company’s revenues. Did the manager make an error? Explainarrow_forward
- The consumer demand equation for tissues is given by q = 11,664 −216 p +p2, where p is the price per case of tissues and q is the demand in weekly sales. Determine the price elasticity of demand E when the price is set at $24. (Round your answer to three decimal places.)E =arrow_forwardThe elasticity of demand for physician visits was determined to be -0.2. The president of the local insurance company wants to add a copayment of $0.50 onto each physician visit. Currently, there is no copay. The number of insured people is 3,000,000 and currently the population uses 2.4 visits per capita. How many visits will they use after the introduction of the copayment?arrow_forwardFor this question and the next few following, you should use the dataset below. Over the range from $4 to $6, Qd goes from 48 to 44. Using this range of prices and quantities, you should calculate the coefficient of price elasticity of demand. In the box labeled A1, the coefficient of price elasticity of demand is: 4 .22 2 .33arrow_forward
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