Sarah's Demand for Routine Medical Visits Is Q = 10

Essay

Sarah's demand for routine medical visits is q = 10 - 0.2p when she is healthy and q = 20 - 0.2p when she is sick.Medical visits cost $50 each if Sarah has no medical insurance.She is sick 20% of the time.Sarah is considering two different insurance plans.One offers free medical visits; the other plan costs less up front but requires that Sarah pay $5 per medical visit.Compare the two plans in terms of the trade-off between risk and moral hazard.