The Economic Way of Thinking 13th Edition by David Prychitko, Peter Boettke, Paul Heyne

Exercise 13

Figure 6-5 portrays a supply curve of physicians' services and a demand curve for those services. The market-clearing fee is $300.
(a) To what position will the demand curve shift if the government agrees to pay the entire fee charged by physicians? What will consequently happen to the market-clearing price? ( Hint : What quantity will people demand at a zero price?)
(b) What will happen to the demand curve and to the market-clearing price if the government commits itself to pay one-half of physicians' fees? ( Hint : When the fee charged is $300, what is the fee paid by consumers? What quantity will they want to purchase at this price?)
(c) What will be the market-clearing price if the government pays 80 percent of the fee charged by physicians?