Question

In a commentary piece on the rising cost of health​ insurance, ("Healthy,​ Wealthy, and​ Wise," Wall Street Journal​, May​ 4, 2004,​ A20), economists John​ Cogan, Glenn​ Hubbard, and Daniel Kessler​ state, "Each​ percentage-point rise in​ health-insurance costs increases the number of uninsured by​ 300,000 people." Assuming that their claim is​ correct, demonstrate that the price elasticity of demand for health insurance depends on the number of people who are insured.

What is the price elasticity if 185 million people are​insured?
If 185 million people are​ insured, then the price elasticity of demand for health insurance is nothing. ​(Enter a numeric response using a real number rounded to three decimal places. Be sure to include the minus​ sign.)

Answer 1

The price elasticity of demand for health insurance shows the responsiveness of the quantity demanded to a change in price. With 185 million people insured, a one percentage-point increase in insurance costs leads to a 0.162% decrease in the quantity demanded, yielding a price elasticity of demand of -0.162.

Step-by-step explanation:

The claim made by economists John Cogan, Glenn Hubbard, and Daniel Kessler in the cited Wall Street Journal article illustrates a direct relationship between the cost of health insurance and the number of uninsured people. Specifically, a one percentage-point increase in health insurance costs would lead to 300,000 more uninsured individuals. The broader implication of this statement is that the price elasticity of demand for health insurance is dependent on the number of people who are insured.

To calculate the price elasticity of demand for health insurance, given that 185 million people are insured, we can apply the formula for price elasticity of demand (PED), which is:

PED = (% Change in Quantity Demanded) / (% Change in Price)

Assuming an increase in the number of uninsured by 300,000 corresponds to a 1% rise in insurance costs, the percentage change in quantity demanded would be: (300,000 / 185,000,000) * 100 = 0.162%, since 185 million are insured. Given a 1% change in price, the PED would be -0.162 / 1 = -0.162 (to three decimal places).