HMGT435 Health Care Economics

1. Suppose this is the market demand curve of eye glasses. Respond to each following scenario about how the demand (or quantity demanded) may change. You need to post one of the figures copied from the study material file for each question and briefly explain it in your own words. (40%)

a. The price of eye-glasses goes up.

b. The price of eye-glasses goes down.

c. The price of contact lens goes up.

d. The price of contact lens goes down.

e. An increase in the income of consumers.

f. A decrease in the income of consumers.

g. A successful advertisement that promotes a fashion to wear glasses.

h. A news shows that more and more people who wear contact lenses cause keratitis.  

2. In the week 2 summary slides, we discussed “consumer surplus” based on a market demand curve. Now let’s think about the consumer surplus from an individual demand curve. You want to buy a box of Vitamin C and this is your demand curve for this product. (Unit of quantity: box.) (40%)

a. If the price is $20, how many boxes do you buy? If the price is $15, how many boxes do you buy?

b. If the price is $10, how many boxes do you buy? Is there any consumer surplus for this transaction? Why?

c. Suppose the price is $20 and there is a promotion that buy 1 get the 2nd five dollars off and get the 3rd ten dollars off. How many boxes of Vitamin C do you buy based on this demand curve? Is there any consumer surplus for this transaction? Why?

d. From (c), what do you think of the merchant’s idea of the pricing strategy for this promotion?  

3. Compare the own-price elasticity of the demand for the medical services below. Discuss which one is the most elastic and which one is the least elastic. Provide your explanation. (no more than one page) (20%)

a. Knee replacement to ease the discomfort by aging joints

b. Life threating event and sent to emergency department

c. Flu shot vaccination