Assume that health insurance pays three-fourths of the cost of health care. Under this type of system, there will be allocative

A) efficiency because consumers pay a price below market equilibrium and receive a quantity at which the marginal cost to society equals the marginal benefit.
B) efficiency because consumers pay a price below market equilibrium and receive a quantity at which the marginal benefit to society exceeds the marginal cost.
C) inefficiency because consumers pay a price below market equilibrium and receive a quantity at which the marginal cost to society exceeds the marginal benefit.
D) inefficiency because consumers pay a price above market equilibrium and receive a quantity at which the marginal benefit to society exceeds the marginal cost.

Question

Wendy Bobadilla · Accepted Answer

Final Answer : C, Explanation :  When health insurance pays a large portion of health care costs, consumers face a lower out-of-pocket price, leading them to consume more health care than they would if they were paying the full cost. This results in a situation where the quantity of health care consumed is at a point where the marginal cost to society of providing that additional unit of health care exceeds the marginal benefit derived from it, leading to allocative inefficiency.

Definitions

Learning Objectives

Learning Objectives

Related questions