Indicate whether the following statement is True/False/Uncertain. Use economic tools, as discussed in the class, to explain your answer. “In a setting where physicians are allowed to set their own fees, a study that finds a positive correlation between physician supply per capita and physician prices represents clear evidence of supplier-induced demand.”

Indicate whether the following statement is True/False/Uncertain. Use economic tools, as discussed in the class, to explain your answer. “In a setting where physicians are allowed to set their own fees, a study that finds a positive correlation between physician supply per capita and physician prices represents clear evidence of supplier-induced demand.”

 

 

Answer:

The statement is False.

Higher price set by physicians as their fees will result in a higher number of physicians supplied, following the law of supply. However, as physician fee rises, number demanded of physicians fall following the law of demand. Therefore, an excess supply (surplus) of physicians develops in the physician market.

Therefore it is incorrect to say there will be evidence of a supply-induced demand.

Asked on February 15, 2018 in economics.
Add Comment
0 Answer(s)
  • Votes
  • Oldest

Your Answer

By posting your answer, you agree to the privacy policy and terms of service.