1. Demand and supply curves of physician care services per day are given by the following equations: Qd = 800 - 5P and Qs = 100 + 4P, where Q is the number of visits in a day and P is the fee per consultation.
(a) Find the equilibrium quantity and fee in this market. What is the total expenditure in the market per day?
(b) Introduce insurance with 20% coinsurance. The insurance is provided free of charge (no premium). What will be the impact of introducing the insurance on quantity, consultation fee and health care expenditure per day? Compare these after-insurance levels with the pre-insurance situation.
(c) Rather than offering insurance with 20% coinsurance, assume that the insurance was introduced with a copayment of $110 per visit. What will be the effects of this insurance on the market compared to no-insurance situation? [Discuss the effects on quantity, fee and expenditure]
(d) Start from the no-insurance situation again (using the demand-supply curves). Introduce insurance with indemnity payment of $40 per consultation. Compare the market outcomes of this insurance with no-insurance situation.
2. Demand function faced by a physician is d = 600 - 3 F, where d is the number of consultancies provided per month and F is the fee per consultation. The physician care market is characterized by monopolistic competition. If the marginal cost of producing a consultation is given by M=20, find the optimal level of d and F for the physician.
3. Define a perfectly discriminating physician (discriminating monopolist).
The demand curve for the physician is: d=400 - 4F. The marginal cost curve is: M=40. Note that the marginal cost curve and average cost curve are the same. Calculate the income of the physician if she is trying to maximize income in a competitive market (monopolistic competition). What will be the income of the physician if she is a perfectly discriminating monopolist (the objective is again maximization of income)? Compare these two income levels. Which market structure provides higher income?
4. If the income levels of all individuals are equal, the "index" of demand for physician services will be proportional to the population in an area (i.e., demand for physicians will be double in an area compared to another area if the population of the area is double of the other area). Similarly, if the average income of the area is higher than the other area, the index will be multiplied by the income elasticity and income ratios of the two areas (income elasticity x (income of one year/income of another area)). In the table below, population and average income levels are shown for the areas A, B, C. D and E. Consider area "E" as the comparison area for your calculations. Assume that all the areas are equal in geographic size. If there are 500 physicians in this country, find the number of physicians to be located in each of the areas if the physicians are income maximizers.
|
Area
|
Pop
|
Income/cap
|
|
A
|
7558900
|
42500
|
|
B
|
2185000
|
15800
|
|
C
|
55000
|
35200
|
|
D
|
22500
|
25500
|
|
E
|
10300
|
10830
|
5. Define Supplier-Induced Demand (SID). We are interested to find out the increased utilization of physician care services because of SID. Propose a research study to identify the presence of SID and its effect on the utilization of physician services.