Question
The services of a certified psychologist cost $110 per hour, and an extended health plan covers 50 percent of that cost. Under the plan, the
The services of a certified psychologist cost $110 per hour, and an extended health plan covers 50 percent of that cost. Under the plan, the clients covered used 625 hours of this service in a typical three-month period. To save money, the extended health plan reduced its coverage to 40 percent of the cost. As a result, the clients covered reduced their use of this service to 482 hours in a typical three-month period.
Calculate the total cost of providing this insured service to the plan before and after the change in coverage. (Show all of your work to earn full marks.)
Based on the data above, calculate the elasticity of demand for the services of a certified psychologist. (Show all of your work to earn full marks.) Interpret the elasticity of demand, and explain the behavior of the clients covered based upon this interpretation.
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