Above are the problem and my answer for a b c and d, can you help me check are t

Question

Above are the problem and my answer for a b c and d, can you help me check are they right? And can you help me with the question e? Thank you in advance.

The graph below shows the supply and demand for health care. The demand curve reflects the marginal social benefit of health care, while the supply curve reflects the marginal social cost. What is the efficient amount of health care expenditures? Suppose that health insurance reduces the price of health care from an average of $100 per unit to S50 per unit. How would such third party payments affect the quantity demanded? Assuming that the price must increase to S150 to accommodate the new quantity demanded, calculate the increase in expenditures for health care. What is the loss in efficiency that results from third-party payments? How could the loss in net benefits from the overallocation of resources to health care be reduced? a. b. c. d. e. Supply 150 100 50 Demand 7 Health Care Services (Billions of Units)

Explanation / Answer

ANSWERS:

a) It is correct as expenditure will be quantity * price= 100*4=400

b) it is correct. the third party increased by 3 billion of units. As the quantitity demanded increased to 7 from 4.

therefore, 7-4= 3 billion of unit

c) this is also corrrect. but the assumption should be that the quantity demanded in subpart b) remains the same. Because usually when the price increase the demand decrease.

d) the consumer surplus declines, so their is loss in effeciency.

e) the loss in net benefit from overallocation can only be reduced by maintaining the equilibrium. unless and untill the equilibrium is maintained, the loss will prevail.  

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