Health Economics - Suppose that demand for a surgical intervention

Health Economics

1. Suppose that demand for a surgical intervention varies across communities. In one third of communities, demand is “low.” Demand is “medium” in another third and “high” in the rest. Note that medium is halfway between low and high. Only one of these demand levels is correct, implying a deadweight loss at the other levels. Show that the deadweight loss is larger when the correct level is low versus when the correct level is medium. (Note: you can assume the supply curve to be either a horizontal line or an upward-sloping line. It doesn’t matter what shape of supply curve you are assuming.)

2. How can you estimate the magnitude of “supplier induced demand”? (Please describe the empirical data you propose to use, and the specification of the regression). What is the identification challenge? How would you address the identification issue?