Price of medical services Supply $55 40 25 D. D, 500 700 Quantity of medical ser

Question

Price of medical services Supply $55 40 25 D. D, 500 700 Quantity of medical services 2) The figure above represents the market for medical services with and without insurance, and the effect of a third-party payer system on the demand for medical services. a) If consumers paid the full price of medical services, what is the price they would pay? b) If consumers paid the full price of medical would the equilibrium quantity be? c) With insurance and a third-party payer system, what price do doctors receive for medical services? d) With insurance and a third-party payer system, what price do consumers pay for medical services? e) With insurance and a third-party payer system, what is the equilibrium quantity of medical services? f) What is the efficient price of medical services? g) What is the efficient quantity of medical services? h) In this scenario, do insurance and the third-party payer system improve economic efficiency?

Explanation / Answer

a). The demand of medical service will be lower if the full amount is to be paid by the consumers. Thus, this will be represented by the curve D1 and the price of medical service in this situation will be $40.

b). The equilibrium quantity, in this case, would be 500(corresponding to $40 as equilibrium price)

c). The price received by doctors in case of insurance is $55.

d). The price paid by consumers will be $25.

e). The equilibrium quantity of medical service is 700(corresponding to $55 as equilibrium price)

f).

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