1. Given Elasticity for D1 (e1) = - 0.3

Elasticity for D2 (e2) = - 0.5

Which demand will entail a greater moral hazard?

1. Before insurance, the copay was $160 and 90 people went for office visits during the week.

For insurance 1, the copay is lowered to $10, and 210 people went for office visits during the week.

For insurance 2, the copay is instead lowered to $30 and 194 people went for office visits during the week.

Compute the social loss for each type of insurance.

Which insurance is preferred by patients?

Which insurance has lower social loss?