Question 1

In a neighborhood with 600 people, the market demand for a flu shot is

Q= 300 - 2P

where Q is the number of flu shots demanded and P is the out-of-pocket price of the flu shot.

a)Assume clinics will provide flu shots at a price of $50.How many people will get flu shots if it is not covered by insurance?

Given,

Total number of people = 600

P = $50

Here,

Q = 300 - 2P

= 300 - 2 * 50

= 300 - 100

= 200

Thus, 200 people will get flu shots if not covered by insurance.

b)How many people will get a flu shot if insurance covers the shot and the customer only pays a $30 co-pay?

Given,

P = $30

Now,

Q = 300 - 2P

= 300 - 2 * 30

= 300 - 60

= 240

Thus, 240 people will get flu shots if the insurance covers it.

c)Briefly describe the moral hazard in terms of the price distortion and responsiveness to the price distortion in this example, and calculate the social loss.

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