1.Moral hazard creates tradeoffs that complicate insurance design and policy choices.Imagine a linear demand curve for outpatient clinician visits, and assume at $100 per visit there would be 50,000 annual visits to a particular urban clinic.A politician would like to be popular, and proposes making clinic visits free (zero price).You know, as the city's staff health economist, that if this were to happen, the number of visits would rise to 75,000.Your job is to testify before the city council, and answer at least two questions: how much social welfare loss from moral hazard would occur; and how much tax money must be raised to finance clinic services if visits were made completely free?

a.

$2,500,000; $15,000,000

b.

$5,000,000; $30,000,000

c.

$1,250,000; $7,500,000

d.

$3,750,000; $22,500,000