Final answer:
Price elasticity of demand impacts the extent of price distortion in the insurance market, especially in healthcare, where adverse selection can raise costs for everyone. Completeness of coverage and controllability of risks are key to price sensitivity.
Step-by-step explanation:
The question pertains to the relationship between insurance, price elasticity, and market distortions in the context of health risks. Price elasticity of demand refers to how sensitive the quantity demanded is to a change in price. The extent of price distortion depends on factors such as adverse selection, where higher risk individuals are more likely to purchase insurance, thus potentially raising premiums for everyone. Meanwhile, the extent of price sensitivity depends on the completeness of the insurance coverage and how controllable the risk is, as well as the price elasticity of demand itself. Insurance can mitigate financial risks associated with health issues but also leads to market distortions due to phenomena like adverse selection and moral hazard.