1) You are a manager for a regional health system. Using an estimate of the pric

Question

1) You are a manager for a regional health system. Using an estimate of the price elasticity of demand of -0.25, how much will ambulatory visits change if you raise prices by 5 percent?

2) You estimate that the price elasticity of demand for clinic visits is -0.25. You anticipate that a major insurer will increase the copayment from $20 to $25. This insurer covers 40,000 of your patients, and those patients average 2.5 visits per year. What is your forecast of the change in the number of visits?

3) A major employer has just added health insurance coverage for its employees. Consequently, 5,000 of your patients will pay a $30 copayment rather than the list price of $100 per visit. These patients average 2.2 visits per year. You believe the price elasticity of demand is between -0.15 and -0.35. What is your forecast of the change in the number of visits?

Explanation / Answer

1]
Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price
Given price elasticity of demand of -0.25, prices rise by 5 percent
% Change in Quantity Demanded = -0.25 * 5% = -1.25%

2]
P1= $20
P2= $25
Q1= 40000*2.5 = 100,000
Q2=?
Price elasticity of demand of -0.25
-0.25 = (Q2-Q1/Q1)/(P2-P1/P1)
Q2 = 100000-0.25*5*100000/20 = 93,750 visits

3]
P2-P1= $30
P1 = $100
Q1 = 5000*2.2 = 11,000 visits
Q2-Q1 = ?
-0.35 < PED < -0.15
-0.35*30*11000/100 < (Q2-Q1) < -0.15*30*11000/100
-1155 < (Q2-Q1) < - 495

Forecast of the change in the number of visits is between -1155 and -495

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.