A couple of assignment questions:

Assume that the market for annual physical check-ups is in equilibrium, and not everyone gets an annual physical check-up.

What is the effect on price and quantity if a government regulation fixes prices at the current level and requires everyone to get an annual physical check-up?

and...

Explain why a tax increase on cigarettes in one state alone might not lead to a substantial price increase for all customers in that state.

1 answer

1) Draw supply and demand graphs for physicals. If government mandates (and enforces) a law for everyone to have a physical, then the demand for physicals becomes highly inelastic (nearly vertical) at Qn where Qn=population. Without a price fix, what happens to price and quantity? Now then set, a price freeze at the initial price. How much are suppliers willing to provide at that price?

2) Do people in NY buy cigs in NJ?