Question

Before Obamacare, economists John Cogan, Glenn Hubbard and Daniel Kessler stated in a 2004 Wall Street Journal commentary, "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 by answering: What is the price 2 elasticity of 200 million people are insured? What is the price elasticity of 220 million people are insured?

Answer 1

The price elasticity of demand for health insurance is relatively inelastic when 200 million people are insured and when 220 million people are insured.

Step-by-step explanation:

The price elasticity of demand measures the responsiveness of the quantity demanded of a good or service to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. To determine the price elasticity of demand for health insurance, we need to consider the number of insured individuals.

If 200 million people are insured and each percentage-point rise in health insurance costs increases the number of uninsured by 300,000 people, we can calculate the percentage change in the number of uninsured as (300,000 / 200,000,000) * 100 = 0.15%. Since the percentage change in quantity demanded is small compared to the percentage change in price, we can conclude that the price elasticity of demand for health insurance when 200 million people are insured is relatively inelastic or less than 1.

If 220 million people are insured, the percentage change in the number of uninsured would be (300,000 / 220,000,000) * 100 = 0.1364%. Again, the percentage change in quantity demanded is small compared to the percentage change in price, indicating an inelastic demand for health insurance when 220 million people are insured.