The figure given below represents demand for and supply of hospital beds in Anytown, U.S.A. , as shown by curves D and S₁in the following figure.If the hospital receives permission to expand, its new supply curve will be S₂.Price level P₁ is the fixed prospective payment reimbursement rate paid by Medicare to the hospital, regardless of actual cost. Figure 18.3 According to Figure 18.3, the surplus of beds caused by the fixed reimbursement rate, before the hospital expansion, is the difference between _____ and _____.

Question

Quizplus · Accepted Answer

The surplus of beds caused by the fixed reimbursement rate is the difference between the quantity supplied at the fixed reimbursement rate (Q₁) and the quantity demanded at that price (Q₃). Therefore, the correct answer is D) Q₃; Q₁. Option A is incorrect because Q₂ is the quantity supplied at the new price after the hospital expands, not the old surplus. Option B is incorrect because Q₄ does not exist on the graph. Option C is incorrect because the new surplus after expansion is unknown and not relevant to the question.

The Figure Given Below Represents Demand for and Supply of Hospital