The demand function is Q = 1,000 − (0.5 × P). P is the price paid by consumers. Calculate the quantity demanded when there is no insurance. (Put these values in column D_U of the table.)

The state mandates coverage with 20 percent coinsurance, meaning that the demand function becomes 1,000 − (0.5 × 0.2 × P).

a. For each price, calculate the amount consumers pay. (Put this figure in column P_Net.)

b. Calculate the quantity demanded when there is insurance. (Put this figure in column D_I.)

c. Plot the two demand curves, putting P (not P_Net) on the vertical axis.

d. How do D_U and D_I differ? Which is more elastic?

Transcribed Image Text:

P $1,000 $960 $920 $880 560 $840 $800 $760 $720 $680 D₁₁ U $640 $600 $560 Pu Net $176 D₁ 912 S 952