if the orginal price of medcial care (with no insurance) equal $1,000, the quant

Question

if the orginal price of medcial care (with no insurance) equal $1,000, the quantity demanded = 10. if insurance is provided (Policy X), out of pocekt drops to $400. also the quantity of medcial care that will be demanded rises 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).

1. solve for the social loss resulting from X. (hint triangle formula: 1/2 x base x height)

a. 9,000, b. 18,000, c. $900, d. $1,800

2. Solve for the social loss resulting from Policy Y.

a. $32,000, b. $16,000, c. $5,000, d. $2,500

Which answer is correct.

Explanation / Answer

1) Social loss = 0.5*(1000-400)*(40-10) = 9000 i.e. answer a

1) Social loss = 0.5*(1000-200)*(50-10) = 16000 i.e. answer b

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