Reference no: EM132231199
Health Economics Assignment -
Q1. Leslie and Frank's demand for a multivitamin product is P = 50 - 5Q and P = 40 - 2Q, respectively, where P denotes the price in $ and Q denotes the quantity in number of bottles.
a. Please draw Leslie and Frank's demand curves in a Cartesian space, where the horizontal axis represents the quantity and the vertical axis represents the price of this multivitamin product.
b. Currently the market price for this multivitamin product is $10. How many bottles of multivitamin will Leslie and Frank buy, respectively?
c. In this multivitamin market, there are in total 500 consumers like Leslie and 200 consumers like Frank. Please find the market demand P = a + bQ and plot it in a Cartesian space.
(Hint: The market demand schedule consists of two different segments, each corresponding to a different price range.)
d. At the current market price, $10, what is the price elasticity of the market demand? Please follow the example provided in the video "Calculating Elasticity", which can be accessed from URCourses.
e. Suppose now the government announces that there will be a 10% sales tax on multivitamin products, what is the new market demand represented by P = a + bQ, where P is the price of the multivitamin product excluding the sales tax? Plot it in the Cartesian space.
f. With the 10% sales tax, do you expect the tax-exclusive price of this multivitamin product to be greater than, equal to, or less than $10? What about the tax-inclusive price? Illustrate in your graph the tax-exclusive equilibrium price, the tax-inclusive equilibrium price, the new equilibrium quantity, and the tax revenue.
Q2. The marginal social benefit of health care is: P = 200 - 10Q and the marginal social cost of health care is: P = 20.
a. Calculate and show in graph the socially optimal level of health care provision.
b. Calculate and show in graph the total economic (social) surplus in the market for health care.
c. If taxpayers become "hard hearted" and do not feel the "caring externality" anymore, which of the following is the correct new marginal social benefit: i) P = 200 - 6Q; and ii) P = 116 - 6Q? Why?
d. In the absence of the "caring externality", calculate and show in graph the socially optimal level of health care provision.
e. Calculate and show in graph the total economic (social) surplus if the new socially optimal amount of health care is provided.
f. Calculate and show in graph the deadweight loss if the quantity in a instead of the quantity in e is provided in the absence of the "caring externality".