(Solved):Assume another policy (Policy Y) that lowers the price from $1,000 to $400 (which yields to an increase in medical care usage from 10 to 15). Which policy has a greater incentive for moral hazard?… View Answer…

 

Question

Assume another policy (Policy Y) that lowers the price from $1,000 to $400 (which yields to an increase in medical care usage from 10 to 15). Which policy has a greater incentive for moral hazard?

A. Policy X

B. Policy Y

C. both policies have equal impact in raising moral hazard likelihood

D. all of the above

E. none of the above

Solve for the social loss resulting from Policy Y. Hint: triangle formula: 1/2 x

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