Question

Consider how health insurance affects the quantity of health care services performed. Suppose that the typical medical procedure has a cost of s120, yet a person with health insurance pays only $20 out of pocket. Her insurance company pays the remaining s100. (The insurance company recoups the s100 through premiums, but the premium a person pays does not depend on how many procedures that person chooses to undergo.) Consider the following demand curve in the market for medical care. Use the black point (plus symbol) to indicate the quantity of procedures demanded if each procedure has a price of $120. Then use the grey paint (star symbol) to indicate the quantity of procedures demanded if each procedure has a price of s$20. 200 180 at P-$120 160 140 Qp at P-$20 120 100 80 60 40 Demand 0 + 10 20 30 40 5060 70 80 90 100 Quantity of Medical Procedures procedures If the cost of each procedure to society is truly $120, the quantity thet maximizes total surplus is more Economists often blame the health insurance system for excessive use of medical care. Given your analysis, the use of care might be viewed as excessive because consumers get procedures whose value is than the cost of producing them. O 20 Price of Medical Procedures

Answer 1

Qp at P=$120 Q, at P=$20 Price of Medical Procedures Demand 0 0 10 20 80 90 100 30 40 50 60 70 Quantity of Medical Procedures

Blanks-

1) 30

2) less