The government plans to adjust the coinsurance rate in order to balance the Medicare budget and wants to know exactly how much to increase the rate. Senior economists at the Ministry of Finance argue that the policy will have two effects: [i] lower cost per patient because the government covers a lower share of health care spendingr and {ii} reduced overall demand because of higher outofpocket price. 1. (10%] As a junior economist you are asked to estimate the elasticity of demand but you get conicting recommendations. Cine senior economist suggests the slope of the demand curve, another the standard demand elasticity and a third the arc elasticity of demand. Which one do you think is more appropriate? Try to convince the other two senior economists. 2. (10%] The same group of senior economists argue that we can save Medicare by improv- ing public health, in particular reduce smoking and obesity. Try to convince them that this can backre in terms of scal balance. 3. (10%] The senior economists are stubborn and they design a proposal to improve pub lic health regardless. They recommend either a Pigouvian tax or a Pigouvian subsidy but they are indifferent because both Pigouvian taxes and Pigouvian subsidies always improve social welfare. Try to convince them that this is not correct