Question

Consider the market for medical care services as displayed below. Without Medicare subsidies, consumers demand Qo medical services at a cost of Po per service. a. How much are consumers paying for medical care without Medicare subsidies? b. Assume that Medicare decides to provide a subsidy of (P. - Pa) to all qualified participant. How much more medical care services will consumers demand? c. Assume that Medicare provides a subsidy of (P. - P.) How much will the out-of-pocket price per individual per service be? d. How will the Medicare subsidy impact the total cost of healthcare? Please explain

d) How will the medicare subsidy impact the total cost of healthcare.? Please explain

Answer 1

Subsidy is the tax in reverse, we pay tax to government for services. But when government pays us on services, this is called subsidy. It means the government will pay some part of the cost.

If there is a subsidy on particular good or service it will cause the cost to fall. Therefore medicare subsidy will decrease the total cost of healthcare. And it will a rise the demand.