1. An individual's demand for physician office visits in a given year is given by, Q = 10 - 0.04P, where Q is the number of office visits and P is the out-of-pocket price paid by the individual for each visit. Assume the market price of an office visit is $180.

Use this information to answer the questions below.

1. Without insurance, how many office visits will the individual make in one year?

2. Suppose the individual has insurance and pays only a $40 copayment for each visit. How many office visits will the individual make in one year?

3. What is the moral hazard and deadweight loss (DWWL) associated with having insurance?

Moral Hazard=

DWL=

4. Based on the Nyman model, suppose the value the individual places on each visit increases by $50 when the individual is ill and has insurance.

a.) Write the general expression for the inverse demands equation, accounting for the increased value of insurance for the individual

b.) What value of Q (number of visits) represents the dividing line between welfare-increasing and welfare decreasing moral hazard?

c.) from Nyman's perspective, what is the welfare-increasing moral hazard, the welfare decreasing moral hazard, and deadweight loss (DWL) associated with having insurance?

Welfare increasing moral hazard =

welfare decreasing moral hazard -

DWL =

Answer rating: 100% (QA)

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