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With the intent of lowering the cost of health care, New York University Langone Medical Center has recently taken a first step toward seven-day
With the intent of lowering the cost of health care, New York University Langone Medical Center has recently taken a first step toward seven-day service by keeping certain functions (including radiology consultations) going all weekend. Doctors, like most people, do not like to work on the weekends. Thus, they adamantly oppose the hospital's intent to move to a seven-day service and, in contrast, suggest that the City of New York introduce a price ceiling on radiology consultations so that poor people can afford radiology consultations. a. On a new graph, illustrate the effect of a price ceiling on consumer surplus and producer surplus. (Use letters to label the areas and discuss the changes in consumer surplus, producer surplus, and total surplus). If the price ceiling is set equal to P = 300, what is the amount of the transfer from producers to consumers? Explain why there is no deadweight loss in this market. Hospitals argue that a price ceiling is not an appropriate way to decrease the cost of health care. In contrast, they advocate the introduction of a subsidy on the provision of radiology consultations. Because the government wants to reduce the cost of radiology consultations to P = 300, hospitals argue that the government should offer a per-unit subsidy of S = 200. b. If the government introduced a subsidy of S= 200, what would be the price paid by the consumers for radiology consultations? Would this policy be effective in reducing the price of radiology consultations paid by the consumers? Why? If the City of New York introduced a per-unit subsidy S = 200, what would be the weekly cost of this policy to the government? c. True or False: If supply had been more elastic at the equilibrium, consumers would have experienced a gain in consumer surplus from the subsidy. Explain by using a Q-P diagram representing the market for radiology consultations.
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