demand curves and coinsurance 1

1. Consider the following information on Barney’s demand for visits per year to his health clinic, which is based upon the fact that his insurance does not cover clinical visits (that is, 100% coinsurance rate):

Price      Quantity 

$55             5 

$44             7 

$33             9 

$22            11 

$11            13

 $0             15

a. Barney has been paying $44 per visit (V). How many visits does he “consume” per year? Draw his demand curve. 

b. Suppose now that his insurance company institutes a 50% coinsurance feature (that is, Barney pays 50% of the price of each visit). Show what happens to the demand curve. What is Barney’s new equilibrium quantity?

 c. Is price elasticity of demand higher, lower or the same as before now that Barney has a 50% coinsurance feature? Explain. (No calculations are needed to answer this question, so don’t calculate elasticity.)

 

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