The Affordable Care Act is intended to reduce the price of health care.A decrease in the price of health care may
A) increase the number of doctors office visits if office visits are considered an inferior good and the substitution effect dominates the income effect.
B) decrease the number of doctors office visits if office visits are considered an inferior good and the substitution effect dominates the income effect.
C) increase the number of doctors office visits if office visits are a normal good.
D) Both A and C.

Question

Quizplus · Accepted Answer

If office visits are considered an inferior good, then as their price decreases (due to the Affordable Care Act), people will substitute away from other, more expensive forms of health care and will increase the quantity demanded of office visits. If office visits are considered a normal good, then people's income will have a positive effect on the quantity demanded, and so a decrease in price will have both income and substitution effects, leading to an increase in the quantity demanded. Therefore, both A and C are possible outcomes.

The Affordable Care Act Is Intended to Reduce the Price