Introductory Health Economics Question 2022

Running head: INTRODUCTORY HEALTH ECONOMICS
Introductory Health Economics
Name of the Student
Name of the University
Course ID

INTRODUCTORY HEALTH ECONOMICS1
Table of Contents
Question 1........................................................................................................................................2
Question a....................................................................................................................................2
Question b....................................................................................................................................2
Question 2........................................................................................................................................3
Question a....................................................................................................................................3
Question b....................................................................................................................................4
Question c....................................................................................................................................4
Question 3........................................................................................................................................5
Question a....................................................................................................................................5
Question b....................................................................................................................................5
Question c....................................................................................................................................6
Question d....................................................................................................................................6
Question 4........................................................................................................................................6
Question i.....................................................................................................................................6
Question ii....................................................................................................................................7
Question iii...................................................................................................................................7
Question 5........................................................................................................................................8
Question a....................................................................................................................................8
Question b....................................................................................................................................8
Question c....................................................................................................................................9
References......................................................................................................................................10

INTRODUCTORY HEALTH ECONOMICS2
Question 1
Question a
Price elasticity of demand for the pharmaceutical product among low income group is -
0.3. Given the elasticity of the low income group, if price of the product increases by 10% then
consumption will be decreased by (0.3*10) = 3% (Kreps 2019). For patients belong to other
income group, given price elasticity of demand is -0.05. Therefore, for this group as price
increases by 10% consumption will be decreased by (0.05*10) = 0.5%.
Question b
If the original price was $10 for low income patients and associated consumption was
100, 000 scripts then revenue from the low income patients was
Revenue=Price× Quantity
¿ $ 10× 100 , 000
¿ $ 1 ,000 , 000
Given that original price for high income patients was $30 and associated consumption
was 200, 000 scripts then revenue earned from high income patient was
Revenue=Price× Quantity
¿ $ 30× 200 , 000
¿ $ 6 , 000 , 000
Therefore, total revenue for the company before the price increases was
Total Revenue=$ 1 ,000 , 000+ $ 6 , 000 , 000

INTRODUCTORY HEALTH ECONOMICS3
¿ $ 7 , 000 ,000
If the company increase price by 10%, new price for low income patients will be $11.
Consumption of low income patients will be decreased by 3%. The new consumption for low
income patients is 97, 000 scripts (Besanko and Braeutigam 2020). Therefore, new revenue from
low income patient is
Revenue=$ 11 × 97 , 000
¿ $ 1,067 , 000
The new price for high income patients will be $33. New consumption is 199,000. Therefore,
new revenue from high income patient is
Revenue=$ 33× 199 ,000
¿ $ 6,567 , 000
Total Revenue=$ 1,067 , 000+$ 6,567 , 000
¿ $ 7 , 634 , 000
As a result of 10% increase of price, total revenue of the company will be increased.
Question 2
Question a
Flu vaccination generates a positive externality. When a person takes vaccination against
flu, it not only protects that individual from the disease but also generates a spillover effect in
terms of protecting other individual in the society who may get infected (Mankiw 2020). The
marginal social benefit of flu vaccination is therefore greater than marginal private benefit.