Question

The state of California recently considered passing a tax on doctors for their services in that state in order to raise revenue to pay for universal health coverage for California residents. Suppose the average open heart surgery costs $100,000, and at that price 23,339 surgeries are performed each year. For the purpose of this analysis, assume that people could get the surgery elsewhere. Which curve on the supply and demand graph would shift? What happens to producer and consumer surpluses? What happens to deadweight loss? Fully explain what the most likely outcome would be in this market if a tax on surgeries is implemented. Use a graph if it will help.

Answer 1

Answer: On a graph the demand curve would shift left because the amount of doctors in that area would remain the demand for surgeries would decrease because of the lower price somewhere else. Producer surplus would decrease while consumer surplus increased.

Explanation:

Answer 2

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