Excel File Edit View Insert Format Tools Data Window Help 25% Tue 8:15:44 AM Q DE AutoSave OFF health_PS3 (3) Q Home Insert Draw Page Layout Formulas Data Review View Tell me Share Comments & Office Update To keep up-to-date with security updates, fixes, and improvements, choose Check for Updates. Check for Updates 02 + X V fx B C D F G H J K L M N P Q R S T U v w X Y Z Supply-Induced Demand A W N - The chart below depicts an individual's utilization of her regular physician's services, meas " s, measured in number of visits. Perof Visits. The downward-sloping purple line represents her demand for (i.e. marginal benefit of) office visits, the horizontal black line, at $140, is the market price of an office visit, the blue line, at $100, is the marginal cost the physician incurs for each visit, and the red line, at $40, is the per-visit copayment paid by the individual (she is insured). In addition, the green trapezoid, MB, represents the minimum benefit the physician must provide this individual (i.e. patient) in order to avoid losing her to an alternative provider. 9 NOTE: 1) The demand curve and market price intersect at 2 visits. 2) The demand curve and marginal cost intersect at 4 visits. 3) MB fills the area between the demand curve and $40 up to 4 visits. Use the information above and in the chart to answer the questions below. Individual Utilization of Physician Services $180 $160 $140 Market Price = $140 $120 $100 MC = $100 $80 $60 $40 C = $40 $20 SO ($20) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 ($40) ($60) ($80) ($100) ($120) Number of Visits 49 Questions: a. Assume the individual is perfectly informed (i.e. as informed as the physician, so there is no information asymmetry). How many visits will the individual make? HC Labor Choice Supply-Induced Demand LR vs. SR Decisions Measuring Market Power Price Controls + Ready + 75% downl NOZD NOV 24 P X W 25PVCNExcel File Edit View Insert Format Tools Data Window Help 25% Tue 8:15:49 AM Q DE AutoSave OFF health_PS3 (3) Home Insert Draw Page Layout Formulas Data Review View Tell me Share Comments x Office Update To keep up-to-date with security updates, fixes, and improvements, choose Check for Updates. Check for Updates 02 X V fx G H K L M N P Q R S U V W Z 48 49 Questions: 50 a. Assume the individual is perfectly informed (i.e. as informed as the physician, so there is no information asymmetry). How many visits will the individual make? b. Now, assume the physician can induce demand because of information asymmetry 1 How many visits will he induce the individual to make? 8386 8 86 8 8 8 8 8 6 8 8 8 F A R A R PFPR c. Under the assumption of information asymmetry, can iatrogenesis (medically-induced illness) occur? Briefly explain. 80 FOR THE NEXT TWO QUESTIONS (d. and e.): Suppose there is an increase in competition in this market due to an increase in the number of physicians. 81 As a result, market price falls to $120. 82 83 Suppose the increase in competition does not change_the patient's information about alternative providers, 4 so that MB does not change (i.e. it continues to fill the area between the demand curve and $40 up to 4 visits). 85 86 d. Assuming the physician can induce demand, how many visits will he induce the patient to make? HC Labor Choice Supply-Induced Demand LR vs. SR Decisions Measuring Market Power Price Controls + Ready downla NOV 24 P X W Q4X 25PVCNExcel File Edit View Insert Format Tools Data Window Help 25% Tue 8:15:51 AM Q DE AutoSave OFF health_PS3 (3) Home Insert Draw Page Layout Formulas Data Review View Tell me Share Comments x Office Update To keep up-to-date with security updates, fixes, and improvements, choose Check for Updates. Check for Updates 02 4 X V fx B C D G H K L M N O P Q R S T U v w X Y Z 80 FOR THE NEXT TWO QUESTIONS (d. and e.): Suppose there is an increase in competition in this market due to an increase in the number of physicians. As a result, market price falls to $120. 82 83 Suppose the increase in competition does not change_the patient's information about alternative providers, 84 so that MB does not change (i.e. it continues to fill the area between the demand curve and $40 up to 4 visits). 85 d. Assuming the physician can induce demand, how many visits will he induce the patient to make? 8 8 9 8 82 8 8 98 8 8 9 Suppose, instead, the increase in competition decreases the patient's information about alternative providers, so that MB_decreases in size, filling the area between the demand curve and $40 up to 3 visits. e. Assuming the physician can induce demand, how many visits will he induce the patient to make? 107 125 126 HC Labor Choice Supply-Induced Demand LR vs. SR Decisions Measuring Market Power Price Controls + Ready downla NOV 24 P X W Q4X 25PVCN