Answer
a) Please see the graph. The quantity of procedures demanded if each procedure is 100 dollars is $Q_{0}$.
b) Please see the graph. The quantity of procedures demanded if each procedure is 20 dollars is $Q_{1}$. The number of procedures would not maximize the surplus.
c) Care might be viewed as excessive since consumers might get procedures that are valued at less than the cost of providing the procedure.
d) One possible policy to curb excessive use is that the consumer pays more of the cost of the procedure. (This might decrease the demand for health care since consumers pay more.)
Work Step by Step
a) Please see the graph.
b) Please see the graph.
c) At 20 dollars per procedure, the quantity demanded is $Q_{1}$. However, the overall cost is still 100 dollars, so the quantity of procedures to maximize surplus is $Q_{0}$.
d) Another way to curb excessive use is for insurance companies determine the true value of the procedure and only allow procedures that are valued at or more than the marginal cost of the procedure.
