Would You Like Fries With Your Antibiotics?

1. Why would CVS want to purchase such a retail clinic as MinuteClinic?

In a monopolistically competitive world of drug stores, this gives CVS a way to further differentiate its product from other stores that don't house a clinic. This creates greater convenience for the consumers, and may reduce the elasticity of demand for CVS' services.

2. What would you expect to see happening to the fees charged by doctors as a result of this new market niche?

This ultimately depends on elasticity. If demand is relatively elastic, then those fees charged by doctors will have to fall to remain competitive. But if there is a need to see a doctor above all else, reducing elasticity of demand, then there may be no need to reduce fees.

3. What external economic benefits may arise as a result of this new innovation in health care?

there may be an increase in efficiency, reduction in costs, increase in choice, and increase in information disseminated through the market.

Multiple Choice/True False Questions

1. The introduction of these retail clinics should -------- the elasticity of demand for health care.

  1. Increase
  2. Decrease
  3. Not change
  4. Reduce to zero
ANS .a

2. Assuming this is a monopolistically competitive industry, we would expect:

  1. Profits of all firms to eventually fall to zero.
  2. The good firms remaining profitable.
  3. The inefficient firms to lose money.
  4. The demand for hospitals to fall.
ANS . a

3. This new niche of retail medical clinics will have the greatest appeal for

  1. Those with health insurance
  2. Those without health insurance
  3. Those with insufficient health insurance
  4. Both B and C
ANS . d

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