QUESTION 5 If the original price of medical care (with no insurance) equal $1,00

Question

QUESTION 5

If the original price of medical care (with no insurance) equal $1,000, the quantity demanded = 10. If insurance is provided, out of pocket drops to $300. Also the

quantity of medical care that will be demanded rises to 40. Is there a social loss due to insurance?

yes

no

not enough information

none of the above

3 points   

QUESTION 6

From the previous problem if there is social loss how much is it?

ther

$21,000

$10,500

$3,500

3 points   

QUESTION 7

Which situation provides the potential for the largest social loss due to insurance?

large price distortion and steep demand curve

small price distortion and steep demand curve

small price distortion and steep demand curve

large price distortion and relatively flat demand curve

3 points   

QUESTION 8

Marcus and Jameis have identical insurance policies except that Marcus coinsurance rate is 20% while Jameis coinsurance rate is 18%. Whose policy will create a greater social loss or moral hazard?

Marcus

Jameis

both create identical social losses

none of the above

3 points   

QUESTION 9

Trey and Elijah have identical insurance policies except that Trey's copay is $20 while Elijah's copay is $18. Whose policy will create a greater social loss or moral hazard?

Trey

Elijah

they will cause identical social losses

none of the above

3 points   

QUESTION 10

Donald and Ben have identical insurance policies except that Donald has a deductible of $1,000 while Ben's deductible is $1,800. Whose policy will create a greater social loss or moral hazard?

Donald

Ben

Mario

Jeb

Carly

If the original price of medical care (with no insurance) equal $1,000, the quantity demanded = 10. If insurance is provided, out of pocket drops to $300. Also the

quantity of medical care that will be demanded rises to 40. Is there a social loss due to insurance?

Explanation / Answer

Ans5) Option (a) is correct. Yes, there is a social loss due to insurance.

Ans 6) Option (c) is correct. Social loss = (1/2) * (40-10) * (1000-300) = (1/2) * 30 * 700 = $10,500

Ans 7) Option (a) is correct. Large price distortion & steep demand curve.

Ans 8) Option (b) is correct. Jameis create more social loss as Jameis have to bear less burden under insurance policy and hence has less incentive to take care of the insured product.

Ans 9) Option (a) is correct. Trey creates more social loss as he has less copay which means he has to pay less after recieving the insurance claim.

Ans 10) Option (a) is correct. Donald creates more social loss as he has to pay less for starting the insurance policy.

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