The following several questions will deal with price elasticity.

Imagine that scientists develop a vaccine for the common cold. Below is a table showing demand for that vaccine in a very small town.

PriceQuantity

$50100

$25150

Use the arc elasticity formula to determine the elasticity of demand for the cold vaccine between $50 and $25.

(Note: if answer is negative -- it should be -- include negative sign.)

Show your work (how did you find e?)

Assume price elasticity for the cold vaccine is -1.5 if the price goes over $50. What would be the percent change in Q if the price went from $50 to $60?

Show percentage increase without % sign (i.e. if answer were 85%, show 85, not .85). If your answer is negative, don't forget the negative sign.(And if your answer isn't negative, think carefully -would a price increase lead to an increase in Q?)

Show your work (how did you solve for the % change in Q?)

Think theoretically about price elasticities. Would you expect people to be more responsive to changes in price (to have higher price elasticities) for vaccines for the common cold, or for emergency room visits?

they would be about the same

unknown

demand for ER visits would be more elastic

demand for cold vaccine would be more elastic

The next few questions deal with insurance and social loss.Consider the following example.Your demand for a particular medical service is Q =150-P.You can either go uninsured,get full insurance,get a plan with a $25 copay,or get a plan with 20%coinsurance.The list price for the medical service is $100.

Before you math, which choice would you expect to cause the most social loss?

uninsurance

full insurance

coinsurance

copay

How much of the medical service would you consume if you were uninsured? (Solve for Q.)

Show your work (how did you find Q?)

What would be the social loss if you were uninsured?

Show your work (how did you find the SL?)

How much of the medical service would you consume if you chose the copay plan? (Solve for Q.)

Show your work (how did you solve for Q?)

What would be the social loss if you chose the copay plan?

Show your work (how did you find the SL?)