Suppose you are collecting data from a country like Japan where the government sets the price of healthcare. Each prefecture in Japan has a different set of prices (for example, Tokyo has higher prices than rural Hokkaido). Data for 1999 are displayed in the table below. Region Outpatient Visits per Month Price per Visit Tokyo 1.25 25 Hokkaido 1.75 15 (4 points) What is the arc price elasticity of demand for health care consumers in Japan (using only these data)? (4 points) Suppose that incomes are generally much higher in Tokyo than Hokkaido. Is your answer to the last question an overestimate or underestimate of price elasticity? Justify your answer. (c) (4 points) Using your estimated elasticity, what would the demand for health care be if the price in Tokyo were raised to 30 per visit? What would the demand in Hokkaido be if the price were lowered to 5 per visit?
Suppose you are collecting data from a country like Japan where the government sets the
|
Region |
Outpatient Visits per Month |
Price per Visit |
|
Tokyo |
1.25 |
25 |
|
Hokkaido |
1.75 |
15 |
- (4 points) What is the arc price elasticity of
demand for health care consumers in
Japan (using only these data)?
- (4 points) Suppose that incomes are generally much higher in Tokyo than Hokkaido.
Is your answer to the last question an overestimate or underestimate of
price elasticity? Justify your answer.
(c) (4 points) Using your estimated elasticity, what would the demand for health care
be if the price in Tokyo were raised to 30 per visit? What would the
demand in Hokkaido be if the price were lowered to 5 per visit?
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