In your own words, explain what a fuzzy demand curve is.

HLSA 711: Health Economics
Spring 2017
Lecture Activity/Assignment 3

After reading the chapter on demand theory, a classmate turns to you and says, “I’m rather confused. According to economic theory, people demand a good or service because it yields utility. This obviously does not apply to medical services. Just last week I went to the dentist and had a root canal, and you can’t tell me I received any utility or satisfaction from that!” Explain to your classmate how utility analysis can be used to explain why he went to the dentist.

In your own words, explain what a fuzzy demand curve is. Why does it exist? What are its implications?

Define own-price elasticity of demand, and explain how it is related to the demand curve. Provide four reasons why the demand for medical services is likely to be inelastic with respect to its price.

You are employed as an economic consultant to the regional planning office of a large metropolitan area, and your task is to estimate the demand for hospital services in the area. Your estimates indicate that the own-price elasticity of demand equals –0.25, the income elasticity of demand equals 0.45, the cross-price elasticity demand for hospital services with respect to the price of nursing home services equals –0.1, and the elasticity of travel time equals –0.37. Use this information to project the impact of the following changes on the demand for hospital services.

Average travel time to the hospital diminishes by 5 percent due to overall improvement in the public transportation system.

The price of nursing home care decreases by 10 percent.

Average real income decrease by 10 percent.

The hospital is forced to increase its price for service by 2 percent.

Suppose demand for good is given by where is the price of good , Suppose is the price of some other good , and is income. Assume that is currently $5, is currently $5, and is currently $100.

What is the elasticity of demand for good with respect to the price of good at the current situation?
Suppose if increases to $10, demand for good A would decrease to 20. What is the cross-price elasticity of the demand for good with respect to the price of good ? What the relationship of good A and B?
Suppose if Income (I) increase by $100, demand for good A increase by 50 unites. What is the income elasticity of demand for good ?

The table below shows results from the study of diabetic patients discussed in Goldman and Smith (2002). Recall that three groups of patients separated by education level were treated with one of two therapies (conventional vs intensive). Their average hemoglobin A1c levels (also known as glycosylated hemoglobin) before and after the experiment are reported. Note that, as in golf, lower scores are better on the hemoglobin A1c test, which measure how well the patient has kept blood glucose levels in control. Most treatment regimens for diabetes are designed to keep hemoglobin A1c levels low.

Improvement in hemoglobin measurement for diabetics by treatment regime and age.
Source: Goldman and Smith (2002).

As the figure indicates, average hemoglobin A1c levels deteriorated for patients in the control
group, but improved for patients in the treatment group.

In all three groups of conventional-therapy patients, glucose levels got worse. Which of the conventional therapy groups had the biggest deterioration in average glycosylated hemoglobin levels?
Which intensive-treatment group had the biggest improvement in average glycosylated hemoglobin levels?
For which group of patients did the intensive-treatment intervention seem to have the biggest effect compared to the conventional therapy? The smallest effect?
What is the implication of these results?

The table below shows data from Rich Edwards et al. (2005) on the prevalence of various afflictions among female nurses who were born at different weights. Hazard rate of coronary heart disease, stroke, and total cardiovascular disease, compared to average birth rate cohort.

Is it a coincidence that all nurses born at average birth weight suffer from coronary heart disease, stroke, and all cardiovascular disease at the exact same rate?

Summarize the data in the figure in one or two concise sentences.

What is the implication of these results?

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