PUBHLTH 122 Lecture 9: 2/1/17 Lecture Notes

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20% of , go down to , at how much would the patient use (off the demand curve): unlike the previous example this is a rotation of the demand curve. Insurance increases medical use because it lowers the prices. Price elasticity of demand: definition: % change in demand for an increase of 1% in price. It tells you how responsive is the demand when we change the price: ex: an elastic rubber band, you can pull it with some force if its elastic and it will stretch. You can put it with the same form but it will not stretch the way the rubber band did. It answers the question: how responsive is demand to changes in price: elastic demand: high elasticity > 1: very responsive to price changes, elasticity must be greater than one. If you increase the price by 1%, the demand will decrease by more than 1%: disproportionality high.

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