Suppose a new infectious coronavirus is spreading though the United States. This coronavirus leaves some victims with long-term fatigue and exhaustion, called covid fatigue.

a.After conducting a survey, survivors report that they are indifferent between living 50 years without covid fatigue or 35 years with covid fatigue. Based on this survey, what is the implied QALY weight associated with having covid fatigue?

b. A new drug is developed that cures covid fatigue. This drug cures the problem for life with a one-time dose. Suppose average life expectancy is 75, the QALY weight is the value you calculated in part (a), and the value everyone places on one quality-adjusted life-year (QALY) is $50,000. How much would a 60-year-old be willing to pay for this drug? (Ignore consumption and discounting costs for this problem.)

c. If the marginal cost of this drug is $120,000 per person, what is the maximum age at which it is socially efficient to provide this new medical treatment? (Hint: for a 75 year old the marginal cost clearly exceeds the marginal benefit. For a 0 year old the opposite is true. Find the cutoff age at which the marginal benefit equals the marginal cost.)

d. Now suppose that insurance covered 75% of the cost of this drug for all individuals. What is the maximum age now that will be willing to pay the cost of this drug?

e. Suppose there is one individual of each age with covid fatigue in the United States. What is the total gain in consumer surplus from insurance? What is the increase in spending by the insurer? What is the total dead weight loss due to insurance?