Suppose you are collecting data from a country like Japan where the government sets the price of
Question:
- Suppose you are collecting data from a country like Japan where the government sets the price of health care. Each prefecture in Japan has a different set of prices (for example, Tokyo has higher prices than rural Hokkaido). Data for 1999 is displayed in Table 2.12.
Table 2.12. Outpatient utilization in Tokyo and Hokkaido, 1999.
Region | Out patient visits | Price/visits |
Tokyo | 1.25/months | 20 |
Hokkaido | 1.5/months | 10 |
A) What is the arc price elastic of demand for health care consumers in Japan (using only this data)?
B) Suppose that incomes are generally much higher in Tokyo than Hokkaido. Is your answer to the last question an overestimate or underestimate of price elasticity? Justify your answer. [Hint: It may be helpful to plot the data points from Table 2.12 and consider likely demand curves for Tokyo and Hokkaido.]
C) Using your estimated elasticity, what would the demand for health care be if the price in Tokyo were raised to 30 per visit? What would the demand in Hokkaido be if the price were lowered to 5 per visit?
You continue your observation of the Japanese Health care system into the year 2000. For inscrutable reason having to do with internal Japanese politics, the government changed the price in both Tokyo and Hokkaido the year, and you observe the demand recorded in Table 2.13
Table 2.13 Outpatient utilization in Tokyo and Hokkaido, 2000
Region | Out patient visits | Price/visit |
Tokyo | 1.0/ months | 30 |
Hokkaido | 1.2/months | 15 |
D) Calculate the price elasticity of demand for health care in Japan using only data from the year 2000.
E) Use data from both years to calculate the elasticity of demand for health care for Tokyo and Hokkaido separately.
F) Using your estimated elasticities, what would the demand for health care in each prefecture be if the price were raised to 60 per visit next year (for both prefectures)?
G) Combine the Tokyo and Hokkaido estimates from exercise 11 (e) to get a single estimate of the price elasticity of health care demand for all of Japan. Assume that Tokyo is five times as populous as all of Hokkaido.
Expert Answer:
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