Question: Recall from chapter 7 that time is an important element in the demand for health. The consumption of health care services requires considerable time for some services and procedures. Economic observation suggests that people value their time. Many turn down additional work, even at increased wages. Others decline to drive across town to save $5 or $10 on an item, even though the cost of driving is far less than the $5 or $10. Given the opportunity cost of time, a focus on the money costs of health care ignores a substantial portion of the economic (total) costs. The discrepancy between the total economic costs and the money costs will be especially large for low-priced services, for services where patient copayments are small, and for patients with high opportunity costs of time.

Suppose that instead of going to work one morning, Ellen decides go to the doctor for a 10-minute visit. It will take her 15 minutes to travel each way, 20 minutes to wait in the office, and 10 minutes with the doctor. Suppose further that the money cost of the visit is $25, and that her hourly wage is $10. Travel (gas etc.) and parking cost $5. Show your work on the following:

a. What is the full price of each visit?

b. Suppose Ellen demands six visits at this full price. Draw a graph of Ellen’s demand for office visits where P equals the full price.

c. Suppose the money price of an office visit increases by $5, at which she demands five visits. On the same graph, illustrate this ordered pair.

d. Find the price elasticity of demand with respect to the full price using “arc elasticity,” which evaluates the price at the midpoint between the beginning (1^st) and ending (2^nd) price, and similarly for quantity. This formula was analyzed at the beginning of the semester in the section “Microeconomic Tools for Health Economics” from chapter 2.

e. Find the price elasticity of demand with respect to the money price using “arc elasticity.”

f. Given your answers to d and e, does time price affect demand? In general, what is time price? In this specific example, what is the time price?