Economics 1

Health Economics Assignment 4

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Economics 2

Health Economics Assignment 4

Problem 11.8

The problem provides us with the following essential data:

- Both Steve and also Ralph are employed at the same place and get a wage of

$15/hour

- The marginal rate differs due to the fact that Ralph is married so he is taxed at 28%

while his colleague at 15%

- Based on those info,Ralph is believed to have a higher demand when it comes to the

health insurance.

In the graphic provided, on the x side is depicted the insurance while on they one is

depicted the total wage. As can be seen,in the given circumstances, there will be a rotation in

terms of the constraints of the budget. Initially, it was represented by the MN line and had an
Economics 3

equilibrium point at the level of A. Even so, after the changes, the budget will rotate and will

now be represented by the line M'N'. This rotation will also modify the equilibrium which will

shift from E0 to E1 while the new equilibrium point is depicted in the graphic with the letter A'.

All of this point out that Ralph is expected to experience an increase in terms of the insurance

need.

Problem 11.9

a) The Total Revenue = The Price * The Quantity

The Total Revenue = 10 * 12

The Total Revenue = $120

The Total Cost = The Other Costs – The Labor Cost

The Total Cost = 40 + 10 * 8

The Total Cost = 40 + 80

The Total cost = $120

The Profit = The Total Revenue – The Total Cost

The Profit = $120 -$120

The Profit = 0$

b) Wage Rate (taking into consideration the heath insurance ) =$8 +1$

Wage Rate = $9
Economics 4

Based on that

Wage = $8 => The workers = 10

Wage = $9 = > the workers = 9

The Elasticity of the Labor Demand = ( The change in the workers/ Avg workers) /

(Change in terms of wage / The Average age)

The Elasticity of the Labor Demand = [(9-10)/(9+10)/2] / [(9-8)/(9+8)/2]

The Elasticity of Labor Demand = - 0.89

c) We will calculate the values after the insurance and obtain the following

The Total Cost = $45 + 9 * $9

The Total Cost = $45 + $81

The Total Cost = $126

The Profit = The Total Revenue – The Total Cost

The Profit = $120 - $126

The profit = - $6

The calculation above points out that there is actually a loss of 6$. Even so, based on the

data provided in the problem, 10$ > 9$ which means that the price has a higher value

when compared to variable cost and because of that the production will continue on the

short run.
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d) All the calculations above point out that Charlie is not winning enough in the short run.

Actually, he is losing and because of that, if changes do not occur, he will most likely

have to exit the market in the long run in order to be able to save money.

Problem 22.6

a) The two insurance plans are depicted below. The purple line depicts Plan B while the
blue line Plan A. We Know that

Plan A= 2500 deductible, 5% coinsurance rate

Plan B= 250 deductible, 20% coinsurance rate

b) In the situation in which the money which is not used will be lost, it is believed that the

household which was classified as being unhealthy will be able to enroll in the health

savings account due to the fact that they believe that they will be able to spend the entire

money for health services. On the other hand, the healthy household most likely won't

enroll due to the fact that they won't need those services as much as the unhealthy

household and they will see it as a loss.

Economics 6

c) Yes, this circumstance will definitely change the enrollment decision. In the updated

version, enrolling for the insurance won't actually mean that the household will lose

money in the situation in which the health plans are not needed. Due to that, the healthy

household will also enroll for the plan due to the fact that they will consider it an efficient

backup plan which won't lead to loss of money even if they won't need those services.

Problem 22.7

The following represents the graphic based on which this problem will be answered:

When referring to the health sector, cost-sharing represents actually a share of the benefits of

cost which is supported both by the person involved and also the insurer when discussing the

loan for the expenses of health services. Due to this share, the patient will be directly involved in

the payment process which will mean a less burden on the insurer but a more significant one on

the patient.
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The graphic attached points out that when the burden is more significant on the patient due to

the fact that they need to pay a part of those services, the demand for the medical services will

tend to fall ( in the graphic provided it falls from point E to point F). On the other hand, the

supply rises from point S1 to point S2 while the equilibrium point will switch from point F to

point G.

Due to a large number of available supplies, the price for these services will also be reduced. As

it is depicted in the graphic the new quantity is represented by Q2 while the new price is P2

which is a lot lower than the initial price which was provided before the presence of cost-sharing.