Assume the demand curve for prescription drugs of an individual

without health insurance is expressed with the following equation: 2QD= 18 -2P5

a. Depict the demand for prescription drugs the individual faces without health insurance on a diagram with Price (P) on the vertical axis and quantity demanded (QD) on the horizontal axis. Show the y (vertical) and x (horizontal) intercept values. On the same diagram, show the demand curve if the individual now has health insurance with 100% prescription drug coverage with no co-pay and co-insurance. What is QD? Show the welfare loss on the diagram if the list price is $30.

b. If now there is a co-pay of $10, what is QD? Show the change in welfare loss on the diagram.

Is the welfare loss reduced? If so, why?

2.(30 points – 6 points each).Consider demand for medical services is as follows_Q= 200-3PP,

wherePPis the out-of-pocket price she actually faces. She is considering four different insurance options: No insurance; full insurance, a coinsurance plan; and a copayment plan. Assume this service has a list price ofPL= $40.

Assignment:Demand Curve for Prescription Drugs

Assignment:Demand Curve for Prescription Drugs

a. Calculate Q under no insurance.

b. Calculate Q and the soical loss loss under full insurance.

c. Calculate Q and the social loss under a 50% coinsurance plan.

d. Calculate Q and the social loss under a copayment plan with a $15 copay.

e. Would the coinsurance or the copayment plan be better at mitigating moral

hazard? Why?

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3.(30 points – 7.5points each).Consider an individual whose utility function over income I is U(I),

where U is increasing smoothly in I and is concave (in other words, our basic assumptions). Let IS = 200 be this person’s income if he is sick, let IH = 800 be his income if he is healthy, let p=0.20 be his probability of being sick, let E[I] be expected income, and let E[U] be his expected utility when he has no insurance.

a. Write down algebraic expressions for both E[I] and E[U] in terms of the other parameters of

the model.

b. Calculate his expected income.

c. If this individual was risk adverse, would he be willing to purchase a health insurance policy to cover potential illness if the policy cost $120? Show the justification for your answer in a graph. Clearly indicate the gain (or loss) in utility from the insurance.

d. Would the individual be willing to pay more than $120 for the insurance policy?

Demonstrate why or why not on your graph.

4.(30 points – 7.5 points each).Consider an individual who is planning on buying health insurance.

There is a 25% chance that the individual will get sick. If sick, her/his income (Is) will be $1000. If not sick her/his income (Ih) will be $10000.

a. What is this individual’s expected income if he/she does not purchase health insurance?

b. Assuming the individual is risk adverse, show in a graph why or why not the individual would

be willing to purchase health insurance if it cost $2250.

c. Would this person still be willing to purchase health insurance if the insurance policy cost

$3250? State any assumptions that you make and show why or why not in a graph.

d. How would your answer to parts b and c change if the individual was risk neutral?

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You must proofread your paper. But do not strictly rely on your computer’s spell-checker and grammar-checker; failure to do so indicates a lack of effort on your part and you can expect your grade to suffer accordingly. Papers with numerous misspelled words and grammatical mistakes will be penalized. Read over your paper – in silence and then aloud – before handing it in and make corrections as necessary. Often it is advantageous to have a friend proofread your paper for obvious errors. Handwritten corrections are preferable to uncorrected mistakes.

Use a standard 10 to 12 point (10 to 12 characters per inch) typeface. Smaller or compressed type and papers with small margins or single-spacing are hard to read. It is better to let your essay run over the recommended number of pages than to try to compress it into fewer pages.

Likewise, large type, large margins, large indentations, triple-spacing, increased leading (space between lines), increased kerning (space between letters), and any other such attempts at “padding” to increase the length of a paper are unacceptable, wasteful of trees, and will not fool your professor.

The paper must be neatly formatted, double-spaced with a one-inch margin on the top, bottom, and sides of each page. When submitting hard copy, be sure to use white paper and print out using dark ink. If it is hard to read your essay, it will also be hard to follow your argument.

 

ADDITIONAL INSTRUCTIONS FOR THE CLASS

Discussion Questions (DQ)

Initial responses to the DQ should address all components of the questions asked, include a minimum of one scholarly source, and be at least 250 words.
Successful responses are substantive (i.e., add something new to the discussion, engage others in the discussion, well-developed idea) and include at least one scholarly source.
One or two sentence responses, simple statements of agreement or “good post,” and responses that are off-topic will not count as substantive. Substantive responses should be at least 150 words.
I encourage you to incorporate the readings from the week (as applicable) into your responses.
Weekly Participation

Your initial responses to the mandatory DQ do not count toward participation and are graded separately.
In addition to the DQ responses, you must post at least one reply to peers (or me) on three separate days, for a total of three replies.
Participation posts do not require a scholarly source/citation (unless you cite someone else’s work).
Part of your weekly participation includes viewing the weekly announcement and attesting to watching it in the comments. These announcements are made to ensure you understand everything that is due during the week.
APA Format and Writing Quality

Familiarize yourself with APA format and practice using it correctly. It is used for most writing assignments for your degree. Visit the Writing Center in the Student Success Center, under the Resources tab in LoudCloud for APA paper templates, citation examples, tips, etc. Points will be deducted for poor use of APA format or absence of APA format (if required).
Cite all sources of information! When in doubt, cite the source. Paraphrasing also requires a citation.
I highly recommend using the APA Publication Manual, 6th edition.
Use of Direct Quotes

I discourage overutilization of direct quotes in DQs and assignments at the Masters’ level and deduct points accordingly.
As Masters’ level students, it is important that you be able to critically analyze and interpret information from journal articles and other resources. Simply restating someone else’s words does not demonstrate an understanding of the content or critical analysis of the content.
It is best to paraphrase content and cite your source.
LopesWrite Policy

For assignments that need to be submitted to LopesWrite, please be sure you have received your report and Similarity Index (SI) percentage BEFORE you do a “final submit” to me.
Once you have received your report, please review it. This report will show you grammatical, punctuation, and spelling errors that can easily be fixed. Take the extra few minutes to review instead of getting counted off for these mistakes.
Review your similarities. Did you forget to cite something? Did you not paraphrase well enough? Is your paper made up of someone else’s thoughts more than your own?
Visit the Writing Center in the Student Success Center, under the Resources tab in LoudCloud for tips on improving your paper and SI score.
Late Policy

The university’s policy on late assignments is 10% penalty PER DAY LATE. This also applies to late DQ replies.
Please communicate with me if you anticipate having to submit an assignment late. I am happy to be flexible, with advance notice. We may be able to work out an extension based on extenuating circumstances.
If you do not communicate with me before submitting an assignment late, the GCU late policy will be in effect.
I do not accept assignments that are two or more weeks late unless we have worked out an extension.
As per policy, no assignments are accepted after the last day of class. Any assignment submitted after midnight on the last day of class will not be accepted for grading.
Communication

Communication is so very important. There are multiple ways to communicate with me:
Questions to Instructor Forum: This is a great place to ask course content or assignment questions. If you have a question, there is a good chance one of your peers does as well. This is a public forum for the class.
Individual Forum: This is a private forum to ask me questions or send me messages. This will be checked at least once every 24 hours.