Reference no: EM133169427

Business and Health Economics

Read the chapter carefully before solving the questions.

Question 1. Use a graph to illustrate how the following changes would affect the demand curve for inpatient services at a hospital in a large city.
A. Average real income in the community increases.
B. In an attempt to cut costs, the largest employer in the area increases the coinsurance rate for employee health care coverage from 10 percent to 20 percent.
C. The hospital relocates from the center of the city, where a majority of the people live, to a suburb.

Question 2. In your own words, explain what a fuzzy demand curve is. Why does it exist? What are its implications?

Question 3. Define own-price elasticity of demand, and explain how it is related to the demand curve. Provide four reasons why the demand for medical services is likely to be inelasticwith respect to its price.

Question 4. You are employed as an economic consultant to the regional planning office of a largemetropolitan area, and your task is to estimate the demand for hospital services in thearea. Your estimates indicate that the own-price elasticity of demand equals 20.25, theincome elasticity of demand equals 0.45, the cross-price elasticity of demand for hospitalservices with respect to the price of nursing home services equals 20.1, and theelasticity of travel time equals 20.37. Use this information to project the impact of thefollowing changes on the demand for hospital services.

A. Average travel time to the hospital diminishes by 5 percent due to overall improvementsin the public transportation system.
B. The price of nursing home care decreases by 10 percent.
C. Average real income decreases by 10 percent.
D. The hospital is forced to increase its price for services by 2 percent.