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You estimate that the price elasticity of demand for clinic visits is −0
You estimate that the price elasticity of demand for clinic visits is −0.25. You anticipate that a major insurer will increase the copayment from $20 to $25. This insurer covers 40,000 of your patients, and those patients average 2.5 visits per year. What is your forecast of the change in the number of visits?
Expert Solution
Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price
here,
% change in price = ($25-$20) / $20
= 25%
0.25 = % change in demand / 25%
% change in demand = (0.25)* (25%)
= 6.25%
New number of visits = 2.5*(100%-6.250%)
= 2.34375 per year
Change in the number of visits = 2.34375*40000 - 2.5*40000
=-6250
Number of visits will decrease by 6250 visits per year with the increase in co-payment.
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