The following demand and supply diagram represents the market for routine outpatient appointments with a primary care physician. D1 shows the annual demand for a typical patient when he or she has no insurance and must pay the entire price of the appointment out of-pocket.
D2 shows how the typical patient responds to the price when he or she has to pay only 50% out-of-pocket, with the rest covered by medical insurance.
a. Can you explain the shape/position of demand curve D2? Suppose the marginal cost of an appointment is $100 and the market is perfectly competitive. Answer all of the following questions twice: once considering a market without medical insurance and once considering a market with medical insurance.
b. How many physician appointments will the typical patient have each year without and with insurance?
c. How much will the patient pay for physician appointments each year? How much will be paid by the insurance company?
d. What is the total annual value to the patient of the appointments?
e. Comparing your answers to parts c and d, what is the amount of net total surplus generated by the market for these physician appointments?
f. How does this relate to the chapter?