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.

a. What is the arc price elasticity 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. 

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 observations of the Japanese health care system into the year 2000.

For inscrutable reasons having to do with internal Japanese politics, the government changed the price in both Tokyo and Hokkaido that year, and you observe the demand recorded in Table 2.13.

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.

Transcribed Image Text:

Table 2.12. Outpatient utilization in Tokyo and Hokkaido, 1999. Region Outpatient visits Price/visit Tokyo 1.25/month Hokkaido 1.5/month 20Y 10Y