1. If the original price of medical care (with no insurance) equal $1,000, the q

Question

1. If the original price of medical care (with no insurance) equal $1,000, the quantity demanded = 10. If insurance is provided (Policy X) , out of pocket drops to $400. Also the quantity of medical care that will be demanded rises to 40. Assume another policy (Policy Y) that lowers the price from $1,000 to $200 (which yields to an increase in office visits from 10 to 50). Which policy has a greater incentive for moral hazard? a. Policy X b. Policy Y c. both policies have equal impact in raising moral hazard likelihood d. none of the above

2. Solve for the social loss resulting from Policy X and what is the social loss resultinf rom policy Y? Hint: triangle formula: 1/2 x base x height

Please explain!!

Explanation / Answer

1. C

Both policies have moral hazard

Here quantity of medical care demanded increases drastically after getting insurance, That means their actual needs were just 10 but now they began demand 40 or 50 which is hazard in itself

2) 1/2X base X height

here 1/2( 40) * 50 = 1000

area is 1000.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

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