Reference no: EM132502783

Many states, such as Virginia, have certificate-of-need laws that prevent hospitals from adding health care capacity (e.g. building a new wing to add more hospital beds) without first getting special permission from state regulatory agencies. Approval for expansions often take months or years. Scenario: assume that the market for hospital services in Fairfax begins in equilibrium (that is, quantity supplied equals quantity demanded). Suppose a novel coronavirus pandemic hits the area that dramatically increases demand to a persistently higher level for hospital services, but the certificate of need law prevents hospital service capacity from increasing (that is, quantity supplied is less than quantity demanded). What is the disequilibrium state of the market and will it remain in that state, ceteris paribus?