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Chapter 5: Q. c (page 108)
Would a government find it easier or harder to raise funds for a public good that all people value similarly but that current government officials possess varying capabilities to provide?
Hard.
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Scans of internal organs using magnetic resonance imaging (MRI) devices are often covered by subsidized health insurance programs such as Medicare. Consider the following table illustrating hypothetical quantities of individual MRI testing procedures demanded and supplied at various prices, and then answer the questions that follow.
| Price | Quantity Demanded | Quantity Supplied |
| \(100 | 100,000 | 40,000 |
| \)300 | 90,000 | 60,000 |
| \(500 | 80,000 | 80,000 |
| \)700 | 70,000 | 100,000 |
| \(900 | 60,000 | 120,000 |
(a) In the absence of a government-subsidized health plan, what is the equilibrium price of MRI tests? What is the amount of society’s total spending on MRI tests?
(b) Suppose that the government establishes a health plan guaranteeing that all qualified participants can purchase MRI tests at an effective price (that is, out-of-pocket cost) to the individual of \)100 per test. How many MRI tests will people consume?
(c) What is the per-unit price that induces producers to provide the amount of MRI tests demanded at the government-guaranteed price of $100? What is society’s total spending on MRI tests?
(d) Under the government’s coverage of MRI tests, what is the per-unit subsidy it provides? What is the total subsidy that the government pays to support MRI testing at its guaranteed price?
Could negative externalities from drone flights be addressed if it were
possible for people to negotiate prices at which drone owners would pay
explicit fees for the right to fly drones above people's properties?Explain
your reasoning
Suppose that, as part of an expansion of its State Care health system, a state government decides to offer a \(50 subsidy to all people who, according to their physicians, should have their own blood pressure monitoring devices. Prior to this governmental decision, the market-clearing price of blood pressure monitors in this state was \)50, and the equilibrium quantity purchased was 20,000 per year.
(a) After the government expands its State Care plan, people in this state desire to purchase 40,000 devices each year. Manufacturers of blood pressure monitors are willing to provide 40,000 devices at a price of $60 per device. What out-of-pocket price does each consumer pay for a blood pressure monitor?
(b) What is the dollar amount of the increase in total expenditures on blood pressure monitors in this state following the expansion of the State Care program?
(c) Following the expansion of the State Care program, what percentage of total expenditures on blood pressure monitors are paid by the government? What percentage of total expenditures is paid by consumers of these devices?
Why do representatives of taxpayers who fund the NSLP program experience more difficulties in designing effective incentive structures for officials who manage that program than does a company's shareholders who seek to change the incentives confronting firms' managers?
A nation’s government has determined that mass transit, such as bus lines, helps alleviate traffic congestion, thereby benefiting both individual auto commuters and companies that desire to move products and factors of production speedily along streets and highways. Nevertheless, even though several private bus lines are in service, the country’s commuters are failing to take the social benefits of the use of mass transit into account.
(a) Discuss, in the context of demand-supply analysis, the essential implications of commuters’ failure to take into account the social benefits associated with bus ridership.
(b) Explain a government policy that might be effective in achieving the socially efficient use of bus services.
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