All else equal, the amount of waste caused by full health insurance is:
A)larger the lower is the price elasticity of demand for medical services.
B)larger the higher is the price elasticity of demand for medical services.
C)larger the lower is the price elasticity of supply for medical services.
D)smaller the higher is the price of medical services.

Question

Quizplus · Accepted Answer

When the price elasticity of demand for medical services is high, people are more responsive to changes in the cost of medical services. This means that with full health insurance, people may overuse medical services because the cost of each individual service is low or free to them. As a result, more waste is created in the form of unnecessary medical procedures or treatments. Therefore, the amount of waste caused by full health insurance is larger the higher the price elasticity of demand for medical services.

All Else Equal, the Amount of Waste Caused by Full