Econ question
3. Assume that the social benefit of surgeries is B = 100s - and that the social cost of surgeries is C' = 30s. (a) What is the optimal number of surgeries from a society's perspective? [1 mark] (b) Assume that individuals can buy insurance and insurance covers two thirds of the cost of surgeries. How many surgeries would occur if insured individuals decided how many surgeries to get? [1 mark] (c) Graph the marginal benefits and marginal costs of surgeries from a society's and the insured individuals' perspective, and show the area of the deadweight loss. [1 mark] Now assume two types of medical innovations. The first innovation (type 1) makes the benefits B = 200s - $ and the second innovation (type 2) makes the benefits B = 100s - . Suppose the costs remain the same. (d) What is the socially optimal number of surgeries for each type of innovation? [2 marks] 2 (e) What is the number of surgeries that will occur for each type of innovation when people have the insurance policy of part (b)? [2 marks] (f) Graph the marginal benefits and marginal costs of surgeries for both types of innovations. [1 mark] (g) Which type of innovation has a larger discrepancy between the social and private number of surgeries [no need to calculate mathematically]? Explain this result intuitively. [1 mark]3. Assume that the social benefit of surgeries is B = 100s - and that the social cost of surgeries is C' = 30s. (a) What is the optimal number of surgeries from a society's perspective? [1 mark] (b) Assume that individuals can buy insurance and insurance covers two thirds of the cost of surgeries. How many surgeries would occur if insured individuals decided how many surgeries to get? [1 mark] (c) Graph the marginal benefits and marginal costs of surgeries from a society's and the insured individuals' perspective, and show the area of the deadweight loss. [1 mark] Now assume two types of medical innovations. The first innovation (type 1) makes the benefits B = 200s - $ and the second innovation (type 2) makes the benefits B = 100s - . Suppose the costs remain the same. (d) What is the socially optimal number of surgeries for each type of innovation? [2 marks] 2 (e) What is the number of surgeries that will occur for each type of innovation when people have the insurance policy of part (b)? [2 marks] (f) Graph the marginal benefits and marginal costs of surgeries for both types of innovations. [1 mark] (g) Which type of innovation has a larger discrepancy between the social and private number of surgeries [no need to calculate mathematically]? Explain this result intuitively. [1 mark]
