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One way to encourage people to spend more on preventative health care is to reduce the price of...

Question:

One way to encourage people to spend more on preventative health care is to reduce the price of health care to consumers by decreasing the health insurance copayment. At current copayment levels, if the price elasticity of demand for visits to see the doctor is -0.25, by what percentage will the quanity demanded of doctor visits increase is the copayment is decreased from $50 to $25 a visit?

Elasticity of Demand:

Elasticity of demand measure the change in the quantity demand of a good due to the change in any factor affecting demand. If elasticity is measured by taking price of own goods into consideration it is termed as price elasticity of demand which measure negative relationship between price and quantity demanded.

Answer and Explanation: 1

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Given,

Elasticity of demand, Ed = -0.25

Initial price (P) = $50

New Price (P1) = $25

Percentage change in Price (%P) is calculated as:

{eq}\begin...

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Price Elasticity of Demand: Definition, Formula & Example

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Chapter 3 / Lesson 54
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Price elasticity of demand describes the response of consumers to changing prices of goods and services. Review the formula for price elasticity of demand, learn how certain products can be deemed elastic or inelastic depending on consumer sensitivity, and understand the importance of the concept.


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