True Master Plan (TMP) - Question 4: Elasticity of Demand

Name
Instructor
Course
Date
True Master Plan (TMP) - Question 4: Elasticity of Demand
Question 4: Elasticity of Demand
Calculate the Arc Price Elasticity of Demand
PEd=% Change in Qty/ % Change in Price
Copayment Level

Physician Visits

% Change in Qty

% Change in Price

Price

 

Per Capita

 

 

Elasticity

$10

6.3

 

 

 

$15

6.0

-4.76%

50%

0.10

$20

5.7

-5.00%

33%

0.15

$25

5.4

-5.26%

25%

0.21

$30

5.1

-5.56%

20%

0.28

$35

4.8

-5.88%

17%

0.35

Is demand for physician services elastic or inelastic? Explain.
This is inelastic demand since the quantity demanded responds only slightly to changes in the price and the price elasticity is all less than 1, in all the scenarios. In other words, inelastic demand represents the ratio of the percentage of change of the quantity demanded to the percentage of change of the price as being less than the unit in absolute terms.
Note: a change in the deductible has two effects:
* Reduces the number of visits per employee
* Reduces the cost per visit by $5 
* Estimate new level of visits for each
Week

Total Costs of Physician Visits

# Visits

# Employees

1

73439

391

4065

2