| Sumario: | Data drawn from the 1960 Survey of Consumer Expenditures are used to estimate price and income elasticities of the demand for hospitalization and physicians' services. The price elasticity ranges from --0.35 to --1.5 for prices ranging from 20 to 80 percent of the 1960 market price. The income elasticity ranges from 0.25 to 0.45 for incomes ranging from $4,000 to $10,000. The estimated demand function is used to calculate the cost of providing protection against the highly probable, small losses typically covered by health insurance policies. A family with an income of $7,000 paid 2.5 times the actuarial value of the loss to protect itself against a highly probable $110 loss.
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