In your own words, use utility analysis and income-substitution theory to explain why the demand curve for medical care is downward sloping

1. In your own words, use utility analysis and income-substitution theory to explain why the demand curve for medical care is downward sloping.

2. After reading the chapter on demand theory, a classmate turns to you and says, “I’m rather confused. According to economic theory, people demand a good or service because it yields utility. This obviously does not apply to medical services. Just last week I went to the dentist and had a root canal, and you can’t tell me I received any utility or satisfaction from that!” Explain to your classmate how utility analysis can be used to explain why he went to the dentist.

3. Use a graph to illustrate how the following changes would affect the demand curve for inpatient services at a hospital in a large city.

A. Average real income in the community increases.

B. In an attempt to cut costs, the largest employer in the area increases the coinsurance rate for employee health care coverage from 10 percent to 20 percent.

C. The hospital relocates from the center of the city, where a majority of the people live, to a suburb.

D. A number of physicians in the area join together and open up a discount-price walk-in clinic; the price elasticity of demand between physician services and inpatient hospital services is (- 0.50).

4. In your own words, explain what a fuzzy demand curve is. Why does it exist? What are its implications?

5. You have just been put in charge of estimating the demand for hospital services in a major city of Pakistan. What economic and noneconomic variables would you include in your analysis? Justify why each variable should be included in the study, and explain how a change in each variable would likely affect the overall demand for hospital services.

6. You are employed as an economic consultant to the regional planning office of a large metropolitan area, and your task is to estimate the demand for hospital services in the area. Your estimates indicate that the own-price elasticity of demand equals (- 0.25), the income elasticity of demand equals (0.45), the cross-price elasticity of demand for hospital services with respect to the price of nursing home services equals (- 0.1), and the elasticity of travel time equals (- 0.37). Use this information to project the impact of the following changes on the demand for hospital services.

A. Average travel time to the hospital diminishes by 5 percent due to overall improvements in the public transportation system.

B. The price of nursing home care decreases by 10 percent.

C. Average real income decreases by 10 percent.

D. The hospital is forced to increase its price for services by 2 percent