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                                         •Increase in Medical Services from the initial
                                         equilibrium Q1 to Q2 is the income effect.
                                         •Movement along the indifference curve U2, which
                                         is from Q2 to Q3 is the substitution effect.




             G3
             G2
                                    U2
             G1

                               U1

                             BC1          BC3                  BC2
                  Q1 Q2 Q3                                             Medical Services
Price

                                                        S




        A
                                 At the initial price of P1 and quantity Q1, consumer and
                                 producer surplus is:
                                    B+C = Initial Consumer Surplus
        B                           D+E = Initial Producer Surplus

                                 A insurance policy that subsidies the use of hospital
   P2
                                 services is similar to a shift in the demand curve right.
        C       I                Suppose the subsidy is P2 - P3 per unit of Q.
   P1                   H
        D   F       G            The effects of this shift is:
   P3
                                   B+C+D+F+G = New Consumer Surplus
                                   E+D+C+I = New Producer Surplus
        E                          C+I+H+G+F+D = Cost to Insurance Company
                                   H = Deadweight Loss




                                                            D2
                                           D1

                Q1          Q2                                    Quantity
Price


                                     At the initial price of P1 and quantity Q1
                                     consumer surplus is:
                                        A = Initial Consumer Surplus

                                     The Impact of Moral Hazard on Producer
                                     and Consumer Surplus When the Price Is
                                     Reduced to 0:
                                        A+B+C = New Consumer Surplus
                                        B+C+E = Cost to Insurance Company
           A                            E = Deadweight Loss


  P1                                                                              S


                        E



           B        C


                            D

       0       Q1               Q2                                           Quantity

				
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posted:10/18/2012
language:Latin
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