{at} points) Question 2. {Individual Mandate in Graphical Framework} Consider the case of a competitive health insurance ll'i't't, similar to what we studied in the graph ical frames-.ork in class. Assume that. as in the Affordable Care Act. the govermnent allows many insurers to compete [perfect competition] to otter the one kind of insurance contract allowed. Consumer demand for insurance is described by: P = 15 are (3:11\" = so Assume that marginal and average costs are characterized by: Mo = 1a ass AC = 1a ass 1. lCompute the competitive market price and quantity outcome mider the usual assump- tions. 2. Compute the welfare loss from adverse selection in this competitive market. ALsoy compute the number of people who should have insurance from a social perspective. Remember that some people here may not have positive social value of insurance. so shouldnt he counted in the deadweight loss from adverse selection. This could he because1 e.g. there are administrative costs of providing insurance. 3. Now, assume that the regulator implements a mandate that requires everybody to buy insurance in the market. Assume the mandate is completely effective. and that everyone gets insurance. What is the welfare impact of this mandate? Is it larger or smaller in absolute value {magnitude} than the welfare loss from adverse selection calculated in 2'." Is it negative or positive'.' 4. Now1 assume that the regulator would like to implement this mandate buy legally isnt required to force people to purchase insurance. However1 the regulator decides to try and get people to buy insurance by subsidizing them to buy insurance. Assume that the regulator gives all consmner a subsidy equal to 21 ftmded from general taxation revenues. Given this subsidy: how many people buy insurance now in this competitive market? What is the price of insru'ance [before factoring the subsidy into that price}? 5. What is the subsidy of this kind in the market that moves 11s from the competitive market outcome in part 1 to the socially optimal outcome in part 2'."