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Suppose that the market equilibrium price for a basic medical check-up is $50, in a market in which there is no health insurance. To encourage more people to get a check-up, the local government mandates that the price of a check-up cannot be more than $40.
a. Is this a price floor or a price ceiling?
b. Draw a graph to illustrate the implementation of this government policy. Explain what happens to the quantity of check-ups in this market as a result of this policy.
d. What happens total producer and consumer surplus in this market? Show these changes clearly on your graph.
e. Has this policy been successful? Explain.
f. Can you think of a different policy that would likely be more successful at encouraging more people to obtain checkups? Explain.
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