you estimate that the price elasticity of demand for clinic visits is -0.25. You

Question

you estimate that the price elasticity of demand for clinic visits is -0.25. You anticipate that a major insurer will increase the copayment from $20 to $25. This insurer covers 40,000 of your patients, and those patients average 2.5 visits per year. What is your forecast of the change in the number of visits

you estimate that the price elasticity of demand for clinic visits is -0.25. You anticipate that a major insurer will increase the copayment from $20 to $25. This insurer covers 40,000 of your patients, and those patients average 2.5 visits per year. What is your forecast of the change in the number of visits

Explanation / Answer

Current number of visits -= 40000*2.5 =100,000 visits

Let change in visits be C

price elasticity of demand = ((New visit - Old no of visits)/Old no of visits)/((New price-old price)/old price)

-0.25 = (C/100,000)/((25-20)/20)

C =- 6250

forecast of the change in the number of visits = -6250

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