10) In a commentary piece on the rising cost of health insurance (\"Healthy, Wea
ID: 1147802 • Letter: 1
Question
10) In a commentary piece on the rising cost of health insurance ("Healthy, Wealthy, and Wise Wall Street Journal, May 4, 2004, A20), economists John Cogan, Glenn Hubbard, and Daniel Kessler stated, "Each percentage-point rise in health-insurance costs increases the number of uninsured by 300,000 people." (This analysis refers to a period before the Affordable Care Act.) a) (6 points) Assuming that their claim is correct, demonstrate that the price elasticity of demand for health insurance depends on the number of people who are insured.Explanation / Answer
Since we know elasticity=%change in quantity/%change in price
Where %change in quantity=change in quantity/original quantity*100
Since for every 1%change in cost, 300,000 people gets uninsured but %change or %uninsured depemds both on change and original value. Since change remains constant at 300,000 but original/initial value is different due to which %change in quantity depends on initial values. Thus higher the initial value lower will be the %change in quantity and lower will be the elasticity or vice versa. Thus elasticity also depends on no. Of uninsured initially.
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