9. True or false. Other things equal, the welfare loss associated with a negativ
ID: 1149129 • Letter: 9
Question
9. True or false. Other things equal, the welfare loss associated with a negative production externality for a good is smaller when the demand for the good is elastic than when it is inelastic. Explain. 10. (Bhattacharya Ch2) Preventative care refers to care taken to prevent future diseases rather than to treat current ones. Compared to emergency room care, preventative care is rarely urgent, and benefits can be difficult to measure. Would you expect preventative care to be more or less price sensitive compared to inpatient care? Why? Bhettacharya Ch2) Suppose you are collecting data from a country like Japan where the goverExplanation / Answer
9.
True. When the demand is elastic then, it will come down when the price of goods producing the negative externality will increase. Here the negative externality can cause the government to take the remedial action and impose the taxes. It will increase the price and demand due to its elastic nature will come down and shift to the other products. So, the net welfare loss will be lower. When the demand is inelastic, then it will not come down with increase in prices. So, welfare loss will be high.
10.
Preventive care should be price sensitive in comparison to the inpatient services because it helps in attracting a bigger audience size. More people opting for the preventive care due to its lower prices, will help to reduce the cost of health care in the future. So, the burden of health care cost will relatively come down. It is only possible when the preventive care is offered at the lower prices. In contrast to it, inpatient care is the immediate need of the patient for a health care services. So, it will be relatively less price sensitive.
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