A survey of consumers indicates that if the price of a medical service (e.

A survey of consumers indicates that if the price of a medical service (e.g. prescription drugs) is $6, consumers will purchase 12 million units of the service, and if the price is $12, consumers will purchase 9 million units.

a) Assuming that the inverse demand curve is linear (P = a – b Q), determine the following when P = $10: quantity purchased, expenditure, and consumer surplus.

b) Suppose that the government provides insurance that covers 50% of the cost (s = insurance rate = 50%).  Determine the following when P = $10: quantity purchased, consumer expenditure, government expenditure, consumer surplus, and deadweight loss.

Linear equation: P = a – bQwhere P= pricea= constantQ= quantityb = multiplying constant of Qat price = $ 6, purchase = 12 million.At price = $ 12, purchase = 9 million.Therefore our equation…

 
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