Economics Homework 3 MSU Supply & Demand Questions Answer the 9 Questions please Carefully please. use the HW reading file as reference. Supply & Demand II

Economics Homework 3 MSU Supply & Demand Questions Answer the 9 Questions please Carefully please. use the HW reading file as reference. Supply & Demand II
1. Suppose that policymakers have been convinced that the market price of cheese is too low.
a. Suppose the government imposes a binding price floor in the cheese market. Draw a
supply-and-demand diagram to show the effect of this policy on the price of cheese and
the quantity of cheese sold. Is there a shortage or surplus of cheese?
b. Suppose the government agrees to purchase all the surplus cheese at the price floor,
who benefits from this new policy? Who loses?
2. A recent study found that the demand and supply schedules for Frisbees are as follows:
Price
($ per Frisbees)
11
10
9
8
7
6
Quantity Demanded
(millions per period)
0
2
4
6
8
10
Quantity Supplied
(millions per period)
15
12
9
6
3
0
a. What are the equilibrium price and quantity of Frisbees? What are producer and
consumer surplus at equilibrium?
b. Frisbee manufacturers persuade the government that Frisbee production improves
scientists’ understanding of aerodynamics and thus important for national security. A
concerned Congress votes to impose a price floor $2 above the equilibrium price. What
is the new market price? How many Frisbees are sold? What is the deadweight loss
from this policy? Who wins and who loses from the policy?
c. Irate college students march on Washington and demand a reduction in the price of
Frisbees. An even more concerned Congress votes to repeal the price floor and impose a
price ceiling $1 below the former price floor. What is the new market price? How many
Frisbees are sold? What is the deadweight loss from this policy? Who wins and who
loses from the policy?
3. A friend of yours is considering two cell phone service providers. Provider A charges $120 per
month for the service regardless of the number of phone calls made. Provider B does not have a
fixed service fee but instead charges $1 per minute for calls. Your friend’s monthly demand for
minutes of calling per month is given by the equation QD=150-50P, where P is the price of a
minute.
a. With each provider, what is the cost to your friend of an extra minute on the phone?
b. In light of your answer to (a), how many minutes would your friend talk on the phone
with each provider?
c. How much would he or she end up paying each provider every month?
d. How much consumer surplus would he obtain with each provider? (Hint: Graph the
demand curve and recall the formula for the area of a triangle)
e. Which provider would you recommend that your friend choose? Why?
4. A subsidy is the opposite of a tax. With a $0.50 tax on the buyers of ice-cream cones, the
government collects $0.50 for each cone purchased; with a $0.50 subsidy for the buyers of icecream cones, the government pays buyers $0.50 for each cone purchased.
a. Show the effect of a $0.50 per cone subsidy on the demand curve for ice-cream cones,
the effective price paid by consumers, the effective price received by sellers, and the
quantity of cones sold.
b. Do consumers gain or lose from this policy? Do producers gain or lose? Does the
government gain or lose?
5. Suppose that the government subsidizes a good: For each unit of the good sold, the government
pays $2 to the buyer. How does the subsidy affect consumer surplus, producer surplus, tax
revenue, and total surplus? Does a subsidy lead to a deadweight loss? Explain.
6. Consider how health insurance affects the quantity of healthcare services performed. Suppose
that the typical medical procedure has a cost of $100, yet a person with health insurance pays
only $20 out of pocket. Her insurance company pays the remaining $80. (The insurance
company recoups the $80 through premiums, but the premium a person pays does not depend
on how many procedures that person chooses to undertake.)
a. Draw the demand curve in the market for medical care. (In your diagram, the horizontal
axis should represent the number of medical procedures.) Show the quantity of
procedures demanded if each procedure has the price of $100.
b. On your diagram, show the quantity of procedures demanded if the consumers pay only
$20 per procedure. If the cost of each procedure to society is truly $100, and if
individuals have health insurance as described, will the number of procedures
performed maximize total surplus? Explain.
c. Economists often blame the health insurance system for excessive use of medical care.
Given your analysis, why might the use of care be viewed as “excessive”?
d. What sort of policies might prevent this excessive use?
7. The equations below give the demand and supply of designer blue jeans per week.
Demand:
Supply:
P = 240 – 4Q
P = 40 + 6Q
a. Graph these equations. Indicate their intercepts.
b. What is the equilibrium price and quantity?
c. Suppose the government imposes a tax of $20 per pair of jeans on the buyers this
market. What is the new equilibrium quantity? How much do demanders now pay
for each pair of jeans? How much do suppliers receive for each pair sold? How much
tax revenue does the government earn?
8. Suppose that a market is described by the following supply and demand equations:
QS=2P QD= 300-P
a. Solve for the equilibrium price and equilibrium quantity.
b. Suppose that a tax of T is placed on buyers, so the new demand equation is: QD=300(P+T). Solve for the new equilibrium. What happens to the price received by sellers, the
price paid by buyers, and the quantity sold?
c. Tax revenue is T x Q. Use your answer to part (b) to solve for tax revenue as a function
of T. Graph this relationship for T between 0 and 300.
d. The deadweight loss of a tax is the area of the triangle between the supply and demand
curves. Recalling that the area of a triangle is ½ BH, solve for deadweight loss as a
function of T. Graph this relationship for T between 0 and 300. (Hint: Looking sideways,
the base of the deadweight loss triangle is T, and the height is the difference between
the quantity sold with the tax and the quantity sold without the tax.)
e. The government now levies a tax on this good of $200 per unit. Is this a good policy?
Why or why not? Can you propose a better policy?
9. Read, “Nurse practitioner patients less costly to Medicare than physician patients,” (MSU News
Service 1/16/2016) and answer the following:
a. What are some of the factors that have increased demand for primary healthcare
services? How have those factors impacted the cost of healthcare?
b. Why might, “the cost of care for patients with a nurse practitioner primary provider
[range] between 11 to 29 percent less than physician patients”?
c. Healthcare scope of practice laws are state-level policies that define the types of
services they can provide and other parameters of healthcare providers’ professional
activities. What are the tradeoffs associated with scope of practice laws? Illustrate one
of these in a supply and demand framework.
MSU News Service JANUARY 6, 2016
A new study by MSU nursing economist Peter Buerhaus and colleagues at Mathematica Policy Research and Brandeis Universityâ€TMs Heller School for Social Policy and
Management finds that patients with a nurse practitioner as a primary care provider are less costly to Medicare than patients with a physician primary care provider. The
study—the first to examine national data—contradicts previous research suggesting that both types of providers generate equal costs or that nurse practitioners actually cost
Medicare more. The study appears in the Jan. 6 issue of HSR: Health Services Research. MSU photo by Kelly Gorham.
1 of 3 12/12/2017, 2:18 PM
Nurse practitioner patients less costly to Medicare than physician patients
http://www.montana.edu/news/15915/nurse-practitioner-patients-less-cos…
With Medicare enrollment and cost concerns growing, a new study finds that patients with a nurse practitioner as a
primary care provider are less costly to Medicare than patients with a physician primary care provider. The study—the
first to examine national data—contradicts previous research suggesting that both types of providers generate equal
costs or that nurse practitioners actually cost Medicare more.
The study from researchers at Montana State University, Brandeis University’s Heller School for Social Policy and
Management and Mathematica Policy Research comes as policymakers have focused increasing attention on the
potential of nurse practitioners to address rising demand for primary care services.
“Because enrollment into the Medicare program will expand rapidly as the 78-million-strong baby boom generation
ages, total Medicare spending will increase substantially. Providing access to care without bankrupting the Medicare
program is a growing concern. Our study offers evidence that primary care provided by nurse practitioners can help
address this concern,” said Jennifer Perloff, a researcher at the Heller School at Brandeis.
The research team analyzed a variety of Medicare payment claims during a 12-month period—including claims for
inpatient and outpatient care—and examined five measures of the cost of care, adjusted for differences in payment
rates and severity of a patient’s health condition. Across all five measures, the cost of care for patients with a nurse
practitioner primary care provider ranged between 11 to 29 percent less than the patients with a physician primary
care provider.
This gap is most pronounced when considering evaluation and management services, which include office, home, and
nursing home visits for new and established patients. The study found that nurse practitioner patients who receive
such services cost Medicare 29 percent less than physician patients.
The findings contradict previous studies that suggested an equal or higher expense for care provided by nurse
practitioners. Previous studies were smaller in scope, often focusing on costs within specific institutions or treatments
of specific diseases, over a shorter time period.
“We examined national data and found large differences that persist even after taking into account the fact that nurse
practitioners are paid at 85 percent of the rate paid to physicians for the same services,” said Peter Buerhaus, a
nursing economist at Montana State. “In contrast to earlier research, this study suggests that nurse practitioners
provide less expensive care across a range of different measures when considering the cost of services provided to
Medicare beneficiaries over longer time periods, like one year, as opposed to examining a single encounter with a
patient.”
According to the researchers, some of the cost difference is likely linked to different practice settings and styles, as
well as unexplained differences in health status between patients.
The findings also shed additional light on the types of Medicare patients who are more likely to see a nurse
practitioner.
“These findings extend earlier work that found nurse practitioners were more likely than primary care physicians to
care for younger, poorer, and disabled Medicare beneficiaries. Increasing the use of nurse practitioners may help to
improve access for these vulnerable patients,” said Catherine DesRoches, a senior fellow at Mathematica.
The study appears in the January 6 issue of HSR: Health Services Research. The research team is currently working
on a comparative study of the quality of care provided to Medicare patients by nurse practitioners and primary care
physicians.
Funding for the study was provided by the Robert Wood Johnson Foundation, the Gordon and Betty Moore
Foundation, and Johnson & Johnson.
Contact: Peter Buerhaus, MSU College of Nursing, (406) 994-2681 or peter.buerhaus@montana.edu
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