An important distinction in health insurance is between the list price (PL) and out-of-pocket price (PP) of a medical good or service. The list price is the official price that the provider charges the insurance company, while the out-of-pocket price is the price that the insurance customer faces. Sometimes, the out-of-pocket price depends on the list price. Suppose that the demand for medical services is as follows:
Qd = 80 − 2PP
where PP is the out-of-pocket price an individual actually faces. Assume that this service has a list price of list price of PL = $20. Draw the demand curve and show the amount of medical services that will be demanded with no insurance. Compare that to the amount of services that would be consumed if the individual was fully insured. Is the amount of services consumed under full insurance efficient? Explain why or why not.