Consider the following equations of demand and supply for he

Consider the following equations of demand and supply for healthcare: P-3000-4Q P-300+2Q (For all of the following questions round numbers to th answer is 426.78, then write 427. If the answer is 1313.489, then write 1313. Do not use the dollar sign or commas- just write in the plain number) 1) What is the initial equilibrium quantity? (Type the number into the first box) (1 pt) 2) What is the initial equilibrium price? (Type the number into the second box) (1 pt) Now consider that there is an insurance that has a 40% coinsurance rate. 3) What is the new equilibrium quantity? (Type the number into the third box) (2 pts) 4) What is the new equilibrium price? (Type the number into the fourth box) (2 pts) 5) What is the deadweight loss due to this insurance? (Type the number into the fifth box) (4 pts)

Solution

1) To find out the equilibrium we simply equate the demand and supply functions.

P = 3000 - 4Q = 300 +2Q

=> 2700 = 6Q

=> Q = 450 units

2) P = 3000 - 4Q = 3000 - 4(450) = 3000 - 1800 = 1200 units

3) and 4) P(d) = 3000 - 4Q = 0.25 P(s) = 0.25 (300 + 2Q)

=> 3000 - 4Q = 75 + 0.5Q

=> 4.5Q = 2925

Q = 650

P = 3000 - 4(650)

=> P = 3000 - 2600 = 400

5) Deadweight loss = 1/2 *base*height = 1/2 *200*800 = 80000