demand for additional health care

where the abbreviation Show more A consumer has a utility function of income Y of the form: U(Y) = 100*sqrt(Y) where the abbreviation sqrt means square root. Furthermore if she becomes ill her demand for medical care Q is: Q= 300- 4P Otherwise a healthy consumer has no demand for additional health care. P is the dollar price per unit of medical care. The current price is P = $25. The probability that she will become ill is .15. Her current income is $10000. To simplify this problem assume that purchasing 200 units of medical care when the consumer is ill just restores the consumer to healthy but that once at the doctor a sick person may elect more medical care than would just make them healthy. Any medical care above that is considered as consumption of any ordinary good or service. Thus the utility level in each state depends on the income level after medical expenses and premiums supplemented by any consumer surplus from medical care above the healthy point e.g. U(Y) now equals U(Y = Y costs + consumer surplus) (In this problem the ill consumer will always choose at least enough medical care to restore her health.) a. What is the consumers expected utility with no insurance (numerical value)? b. Political candidate A proposes that comprehensive health insurance be provided to everyone (no deductible no co-pay). The proposed premium would be 10 percent above the actuarially fair level for this consumer (to cover transaction costs). What premium would be charged for this plan and what expected utility level would it yield? c. Political candidate B proposes a catastrophic insurance plan. It would cover all expenses above $5500 but the consumer would pay for all medical expenditures up to $5500. Again the proposed premium would be 10 percent above the actuarially fair level. What premium would be charged for plan B and what expected utility level would it yield? d. Political candidate C proposes a comprehensive plan with no deductibles but a 40 percent coinsurance rate (the consumer would pay $.40 for each $1.00 of medical expenditure). The proposed premium would also be 10 percent above the actuarially fair level. What premium would be charged for plan C and what expected utility level would it yield? e. Suppose a $50 preventive visit to the doctor lowered the probability of illness to .075. Would the consumer purchase a preventive visit if she is not covered by health insurance? Why? Show less


Order the answer to view it

Assignment Solutions


Assignment Solutions

ORDER THIS OR A SIMILAR PAPER AND GET 20% DICOUNT. USE CODE: GET2O