Questions and Answers of The Economics Of Health And Health Care

What are the social benefi ts and costs behind regulating the number of medical schools?
What is joint production? What does the term joint production costs mean? Given that medical schools engage in joint production of education, patient care, and research, what inferences can be drawn
In contrast to medical education, numerous night and part-time law schools have been established. Compare and contrast the various aspects of training that have led to these different educational
What are some factors that help explain earnings differences across specialties? Why might the earnings differences persist over long periods of time?
The rate of return on investment in medical education exceeds that for other professions.What are arguments for and against government subsidies?
Female physicians earn considerably less than their male counterparts. Discuss some of the reasons that account for the differences. What kind of evidence would lead one to conclude that at least
Consider the fi rm’s demand ( MRP ) for labor, such as in Figure 16.2. If the demand elasticity is –0.5, what will be the effect of increased wages on total labor earnings? $ Wage rate, marginal
Using Figure 16.3, graph and analyze the impact of an increase in the price of lab tests on the labor market. W Wage rate W W E 0 S E' L D2 D L Number of workers Figure 16.3 Market Demand and Supply
Consider the market for highly skilled laboratory technicians. Graph the impacts on market wages if limitations on immigration were lifted. Would more or fewer services be provided? What would happen
In this chapter, we discuss how physicians’ marginal products rise up to 25 hours and then slowly fall to zero at 110 hours. Graph both marginal and total products from this statement.
Using supply-and-demand analysis, model the equilibrium level of physicians’ wages.What would be the impact on physicians’ wages of more stringent policies on the employment of foreign medical
Suppose that a medical school provides three outputs—patient care, education, and research—and that the total cost of the school is $100 million per year. If the school produced only education,
Suppose that the licensure requirements for health care providers were eliminated. Use supply-and-demand analysis to predict what may happen to the price and quantity of health care services. Are
Explain and distinguish between the “concentration ratio” and the “HHI.” What are the limitations of these measures within the context of the pharmaceutical industry?
Direct-to-consumer (DTC) advertising of prescription drugs has grown rapidly. List several products with which you have become familiar as a result of such advertising.Discuss the pros and cons of
Use Figure 17.1 to explain how an isoquant can be positively sloped. Under what circumstances may a patient actually end up in the positively sloped region (e.g., at point H )? Medical inputs M M 0
Regulation is often proposed (and widely used in other countries) to limit prices or profits.Discuss possible adverse effects of regulating prescription prices. In light of your discussion, what
What are barriers to entry? Describe three potential barriers in the pharmaceutical industry.What are some consequences of these barriers?
In 2004, Congressman Dennis Kucinich proposed the Free Market Drug Act. This legislation would have removed patent protection on drugs developed with public funds and given control over
There are wide differences across countries in the share of health resources spent on drugs.Describe possible economic and noneconomic factors that may contribute to the variation.
Direct-to-consumer advertising has been criticized for possibly misleading patients and for increasing spending on drugs. Discuss the benefi ts and costs of DTC advertising.
Media reports often show much higher drug prices in the United States than in other countries. Analyses by economists often show that the price differential is not as large.Describe some possible
Consider the information in Box 17.2. Are the CEOs of Turing, Valeant, or other fi rms seeking profi table opportunities by purchasing generics and subsequently raising prices just engaging in good
Use Figure 17.2 to explain why cost minimization through a tangency between an isoquant and a budget line does not apply in cases where D and M are either perfect complements or perfect substitutes.
Assume that a patient has 80 percent coverage for medical services but no coverage for prescription drugs. An 80 percent drug benefi t is added. Show graphically what will happen to the relative
A pharmaceutical fi rm faces the following monthly demands in the U.S. and Mexican markets for one of its patented drugs:where quantities represent the number of prescriptions. Assume that resale or
Assume that the fi rm in Exercise 3 cannot prevent resale and is forced to set the same price in both markets. Find the price graphically and/or algebraically and show that total profi ts are less
For your answer in 3a:(a) Calculate the price elasticity of demand in each market at the optimal price.(b) Verify that the prices and elasticities are consistent with the profi t-maximizing formula
Consider only the U.S. market from Exercise 3. Graph solutions to parts 6a and 6b using the demand, average cost, and marginal cost curves. Also try to develop the answers algebraically.(a) Price
Compare your results in Exercises 6a and 6b with the profi t-maximizing solution for the United States obtained in Exercise 3a. Explain which of the three alternatives you would prefer if you were
Many insurance companies increased premiums by 15 percent or even more in the early years after 2000, blaming soaring pharmaceutical costs for their premium increases. Evaluate the validity of this
At point 0 A in Figure 18.1, Belinda has all of both goods. Is this point Pareto effi cient? Is it equitable? Discuss. Food Fo FB OA Abner E U B UBB MB -Medicine UAB Contract curve Z Belinda Mo
If society could clearly choose an equitable point refl ecting a distribution of the two goods, is this point inevitably going to lie on the contract curve?
Choose an example of a health care market and identify ways in which it differs from the perfectly competitive model. Do you think that these deviations from competition could each be repaired by
We describe several economic criticisms of need-based distributions. Do any of these criticisms apply to Daniels’s conception of health care need?
Speculate on how each of the three described theories of social justice would view government programs designed to provide infant and child care to the poor using tax dollars.
Under utilitarianism, one maximizes the total utility of society. What does this imply about the marginal utility for each person? What does it imply about the total utility for each person?
Suppose society determined that it must provide a minimal sustained level of health to everyone. What would this imply regarding society’s expenditures on health?
Insuffi cient health care for some often is seen as a problem of insuffi cient income to purchase health care. Discuss two alternatives to social programs that provide health care.
Prove that point B in Figure 18.1 is not Pareto effi cient. Food Fo FB OA Abner E C B Contract curve UAB UBB MB -Medicine Z Belinda Mo Figure 18.1 Edgeworth Box for Exchange; Pareto Efficient
Draw an Edgeworth box like the one in Figure 18.2 but with only these details inside:the point V and budget line AB through V . Using indifference curves, depict the utilitymaximizing choice for
Is it possible to fi nd a point on the contract curve that is not a competitive equilibrium?
Let Q opt in Figure 18.4 represent the optimal level of health care in society under the external benefi ts rationale for social health care programs. Would members of society necessarily view Q opt
If all taxpaying members of society became “hard-hearted,” feeling no external benefi t in the health care provided to others, then what would be the optimal health care output under the external
In Figure 18.7, which depicts the utility-possibility frontier, would society ever choose an ineffi cient point (inside UU ) as the optimal point? Belinda's utility UB U UB W' min 0 UA min B W' UA U
Suppose Fred has an income of $5,000 per year, and Harry has an income of $105,000 per year. If we tax $50,000 from Harry to give to Fred, will this represent a Pareto improvement for society? Why or
What is meant by market failure? What is the potential role of government in each instance of market failure found in the health care sector?
In what sense can information and redistribution be thought of as public goods? Explain whether private markets will oversupply or undersupply these goods.
What are some examples of government’s providing health care? Of subsidizing the production or consumption of health care? Of providing insurance for health care? Of regulating health care markets?
Why is government needed to provide a public good? Under what circumstances might the voluntary contribution model, described in Figure 19.2, work reasonably well? PA + PB PB PA D = MB Public good
The standard monopoly–competition comparison describes the welfare loss. Develop arguments to support the view that in the real world:(a) the welfare loss is exaggerated;(b) the welfare loss is
Discuss the nature of the negative externalities associated with the consumption of junk food. Discuss the pros and cons of a “junk food tax” and of regulations limiting portion sizes that can be
Mandated health benefi ts have proliferated since 1970. Discuss the pros and cons of the ACA mandate requiring coverage of dependent children through to age 26.
What is meant by the tax subsidy of employer-paid health insurance? Explain why the subsidy very likely increases health care spending and thus the cost of such insurance.Give an example as to why a
Some economists propose a tax policy that would allow individuals who purchase their own insurance to deduct these costs as well as all out-of-pocket costs for health care from taxable income.
The pharmaceutical industry has been subject to considerable regulation in bringing drugs to the marketplace. Discuss the benefi ts and costs to society from such a policy.
How does prospective payment change the incentive to hospitals as compared to retrospective reimbursement? What predictions would one make due to the adoption of reimbursement based on DRGs?
Under Shleifer’s theory of yardstick competition, why does the fi rm have an incentive to reduce its costs? If all fi rms respond by reducing their costs, will the payment rate also subsequently
What is the Medicare PPS program under DRGs? How has the Medicare PPS payment under DRGs affected hospital practices? Length of stay? Quality of care? Financial condition?
Does the Medicare PPS payment under DRGs reduce costs? Discuss.
What is meant by the welfare loss of monopoly? Who bears this loss? Determine the regulated price in Figure 19.1 that will eliminate the welfare loss. Why will it be diffi cult in practice to adopt
Suppose that the public good in Figure 19.2 is associated with increasing costs of production(this would occur if AC is positively sloped). Will the two individuals be able to fund the optimal amount
Assume a positively sloped, short-run supply curve in Figure 19.3 and a constant $5 per unit marginal external benefi t. Show what happens with a $5 subsidy given to producers.Who gains the benefi ts
Using Figure 19.3, explain how a $5 tax on those who are not inoculated will result in the effi cient output. Why is this approach unlikely to work in practice?
Take a commodity, such as cigarettes or “junk food,” associated with negative externalities.Assume that the marginal private cost of production and the marginal external cost per unit are both
Draw a graph showing the marginal revenue (MR) and marginal cost (MC) of increasing the tax rate (t) in the Peltzman model of regulation represented by equation (19.1). Place the tax rate on the
In Figure 19.1, suppose the demand for the good was summarized by the equations:and that the marginal cost equals the average costs at $10 per unit.(a) Calculate the optimum market quantity in a
Suppose that Hospitals A through E have the following marginal costs for a given procedure:Hospital A—$2,000 Hospital B—$2,200 Hospital C—$1,800 Hospital D—$2,700 Hospital E—$2,300
Here is a complex yardstick problem. A monopoly hospital faces the following demand curveand the following marginal cost (with no fi xed costs)c = 22 (a) Calculate the profi t-maximizing values of p*
In what ways does social insurance differ from private insurance?
Of the fi ve types of social insurance programs described, which types characterize Medicare? Which types describe Medicaid?
What are the similarities between Medicare and Medicaid? What are the differences?
What factors contributed to the historical growth in Medicare spending?
Describe how Medicare has affected access to care for the elderly.
Does access to health care provided through social insurance programs affect health status? Discuss the evidence.
What are some possible reasons that other industrially advanced countries have far more comprehensive social insurance programs for health care than does the United States?
Historically in the United States, what groups have supported social insurance for health care, and what groups have opposed it? Why do you think this is the case?
For students in the United States, compare Medicaid coverage in your state with coverage afforded to recipients in a neighboring state. Are they the same? If not, why do you think that they differ?
The ACA has engendered particular debate between proponents and opponents. Why do you think this is the case?
Reductions in federal stimulus plans and decreasing state resources have affected the Medicaid program. Discuss the impact on Medicaid and state responses in the state where you live or go to school.
Are elderly people provided the right amount of health care under current U.S. policies?Contrast your answer for the United State to other countries with which you are familiar.
Calculate the average tax rate for Social Security at incomes of $25,000, $50,000,$75,000, $100,000, $125,000, and $150,000. Do the same for Medicare. (You may choose to do each graphically.)
Figure 20.3 describes the Medicare Part D prescription drug benefi t. Look at the Web page www.partd-medicare.com/ in your area and determine the marginal coinsurance rates applicable in each
Consider Currie’s discussion of take-up of social programs, where the x -axis is program enrollment and the y -axis refers to monetary costs and benefi ts.(a) If we measure the number of people
Consider a population of 1,000 families: 200 had Medicaid insurance, 700 had some other type of insurance, and 100 were uninsured. Suppose now that Medicaid broadens eligibility rules that would
Consider the analysis described in Figure 20.6. Tom and Dick each earn $25,000 per year. Tom has a spouse and two children, and Dick is unmarried. Health insurance and other goods trade off dollar
Discuss the factors that may lead one nation to spend more per person on health care than another nation. What are the implications of fi nding health care to be income elastic in cross-national
In countries in which there is nonprice rationing for care, waiting time costs may be substantial.How could you measure the economic costs of the waiting time?
Create a table comparing the British, Chinese, and Canadian health care systems with respect to fi nancing, availability, and costs of care. How do they compare with the system in the United States?
Suppose that the price of health care services rises and the quantity demanded falls. Under what conditions might the health care share of GDP fall? Rise?
It is important to compare items under the rubric of “all else equal.” What crucial factors must be adjusted when comparing health expenditures across countries?
Distinguish between a National Health Insurance system and a National Health Service.Provide examples of each. What kind of a system does the United States have?
As noted in Table 21.8, patient access and costs vary among a number of measures. Are these measures useful indicators of the performance of health care systems? Could you think of any others? Table
Many economists feel that markets are effi cient unless characteristics are present that lead to market failure. What sorts of market failure in the health economy can be used to justify adoption of
Do countries with more comprehensive national programs for the provision of health care tend to have lower average costs than the United States? Do they have lower rates of growth in costs? Discuss.
Speculate about the level of technology available across countries. Do you think that better health care is available in the United States than in Canada? Do international health indices suggest
What ideas discussed in this chapter would be suitable to recommend to a country just now revising its health system? To pursue equity, that is, wide coverage? To pursue cost containment, that is,
The Organization for Economic Cooperation and Development (OECD) provides some of the best data available for comparative international work. Its website is www.oecd.org. Use the OECD data to examine
Consider the allocation of services in the United Kingdom’s NHS, as noted in Figure 21.2.If the government raises the administered price up from P *, trace what would happen to expenditures in the
Defi ne income elasticity of health care demand.(a) If income increases by 1 percent and the income elasticity of health care demand is+0.75, does the share of income going to health care increase or

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