How much higher is quality-adjusted price of checkups

Assignment Help Microeconomics
Reference no: EM13901324

Hedonic pricing

As the first Focus box in this chapter explains, it is difficult to measure the true increase in prices of goods whose characteristics change over time. For such goods, part of any price increase can be attributed to an increase in quality. Hedonic pricing offers a method to compute the quality-adjusted increase in prices.

a. Consider the case of a routine medical checkup. Name some reasons you might want to use hedonic pricing to measure the change in the price of this service.

Now consider the case of a medical checkup for a pregnant woman. Suppose that a new ultrasound method is introduced. In the first year that this method is available, half of doctors offer the new method, and half offer the old method. A checkup using the new method costs 10% more than a checkup using the old method.

b. In percentage terms, how much of a quality increase does the new method represent over the old method? (Hint: Consider the fact that some women choose to see a doctor offering the new method when they could have chosen to see a doctor offering the old method.)
Now, in addition, suppose that in the first year the new ultra- sound method is available, the price of checkups using the new method is 15% higher than the price of checkups in the previous year (when everyone used the old method).

c. How much of the higher price for checkups using the new method (as compared to checkups in the previous year) re- flects a true price increase of checkups and how much repre- sents a quality increase? In other words, how much higher is the quality-adjusted price of checkups using the new method as compared to the price of checkups in the previous year?

In many cases, the kind of information we used in parts (b) and(c) is not available. For example, suppose that in the year the new ultrasound method is introduced, all doctors adopt the new method, so the old method is no longer used. In addition, continue to assume that the price of checkups in the year the new method is introduced is 15% higher than the price of check- ups in the previous year (when everyone used the old method). Thus, we observe a 15% price increase in checkups, but we real- ize that the quality of checkups has increased.

d. Under these assumptions, what information required to compute the quality-adjusted price increase of checkups is lacking? Even without this information, can we say any- thing about the quality-adjusted price increase of check- ups? Is it more than 15%? less than 15%? Explain.

Reference no: EM13901324

Questions Cloud

Companys requirements for high product quality : You are a procurement manager who has been tasked with setting up a program to improve the ability of your company’s existing suppliers to better meet your company’s requirements for high product quality. What steps would you take to meet this taskin..
Under a periodic review policy-air transportation : Motorola obtains cell phones from its contract manufacturer located in China to supply the U.S. market, which is served from a warehouse located in Memphis, Tennessee. How many days of cycle inventory does Motorola carry under each policy? Under a pe..
Determine the product costs per unit using the new system : Determine the product costs per unit using the new system
Write a function that accepts a char array : Write a function that accepts a char array, its size and a char to search for in the given array. Use PROTO, INVOKE and LOCAL keywords - Find four different ways to reset eax other than "mov eax, 0"
How much higher is quality-adjusted price of checkups : How much of the higher price for checkups using the new method (as compared to checkups in the previous year) re- flects a true price increase of checkups and how much repre- sents a quality increase?
Why do you think some of the leadership models : Why do you think some of the leadership models that were developed 20 to 30 years ago are not appropriate for today? Why are some of the models that were developed during that timeframe still appropriate for today?
Assembly of balanced product portfolio : Justify the assembly of a balanced product portfolio by marketing managers as a means of ensuring extended success in the health care market industry. Provide two (2) real-life examples to support your rationale.
Role and influence the user plays in software development : You are a city transportation planner and are interested in improving the city's bus service. What types of analytic tools might help you do this, and how would you use them? Discuss the role and influence the user plays in software development
Compute the total overhead variance : Compute the total overhead variance

Reviews

Write a Review

Microeconomics Questions & Answers

  The free rider problem

Question: Explain why the free rider problem makes it difficult for perfectly competitive markets to provide the Pareto efficient level of a public good.

  Failure of the super committee is good thing for economy

Some commentators have argued that the failure of the “Super committee” is good thing for the economy?  Do you agree?

  Case study analysis about optimum resource allocation

Case study analysis about optimum resource allocation: -  Why might you suspect (even without evidence) that the economy might not be able to produce all the schools and clinics the Ministers want? What constraints are there on an economy's productio..

  Fixed cost and vairiable cost

Questions:  :   Which of the following are likely to be fixed costs and which variable costs for a chocolate factory over the course of a month?  Explain your choice.

  Problem - total cost, average cost, marginal cost

Problem - Total Cost, Average Cost, Marginal Cost: -  Complete the following table of costs for a firm.  (Note: enter the figures in the  MC   column  between  outputs of  0 and 1, 1 and 2, 2 and 3, etc.)

  Oligopoly and demand curve problem

Problem based on Oligopoly and demand curve,  Draw and explain the demand curve facing each firm, and given this demand curve, does this mean that firms in the jeans industry do or do not compete against one another?

  Impact of external costs on resource allocation

Explain the impact of external costs and external benefits on resource allocation;  Why are public goods not produced in sufficient quantities by private markets?  Which of the following are examples of public goods (or services)? Delete the incorrec..

  Shifts in demand and movements along the demand curve

Describe the differences between shifts in demand and movements along the demand curve. What are the main factors which can shift the demand curve? Explain why they cause the demand curve to shift. Use examples and draw graphs to support your discuss..

  Article review question

Article Review Question: Read the following excerpts from the article "Fruit, veg costs surge' by Todd, Dagwell, published in the Herald on January 25th 2011 and answer questions below:

  Long-term growth, international trade & globalization

Long-term Growth, International Trade & Globalization:- This question deals with concepts such as long-term growth, international trade and globalization. Questions related to trade deficit, trade surplus, gains from trade, an international trade sce..

  European monetary union (emu) in crisis

"Does the economic bailout of Spain and Greece spell the beginning of the end for the European Monetary Union (EMU)?"

  Development game “settlers of catan”

Read the rules of the game, the overview and the almanac for the Development Game "Settlers of Catan"

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd