Question: Refer to the box titled \"Steering Patients to Less Expensive Provider

Question

Question: Refer to the box titled "Steering Patients to Less Expensive Providers" in this chapter. What would happen in the market for colonoscopies with a reference price of $500? What would happen in the market for colonoscopies with a reference price of $25?

Information to use as reference from "Steering Patients to Less Expensive Providers": The average price of a colonoscopy in the United States is $1,185, but according to the International Federation of Health Plans (2013) a quarter of providers charge $536 or less.

Explanation / Answer

As per 2013 report, reference price is $536.

If price falls to $500, quantity demanded for colonoscopy increases, and there is a downward movement along demand curve, which results in higher quantity and lower price.

If price falls further to $25, there is further increase in quantity demanded for colonoscopy and a further downward movement along demand curve, leading to much higher quantity at a much less price.

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