Suppose from your randomized experiment you observed two data points about demand for healthcare:
- An average number of outpatient care visit of 2.65 per year among individuals who are assigned to health insurance plan with 40% coinsurance rate. And,
- An average number of outpatient care visit of 1.45 per year among individuals who are assigned to the same health insurance plan with only difference of 80% coinsurance rate.
a) Is the data you observed provide evidence for downward sloping demand? Why?
b) Calculate price elasticity of demand
c) Is the demand elastic or inelastic? Explain.