Chapter 1 Choices: Money, Medicine, and Health
Odd
True/False
1) Over the past 100 years, out of pocket expenditures for health care services by individuals have decreased from about 50% to less than 10%.
3) Ranking everyone by the amount spent on medical care, 70 percent of the total (all expenditures for all people) is accounted for by the top 10 percent of patients. This phenomenon is called cost shifting.
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5) The Flow of Funds idea emphasizes that total dollars spent by individuals, government and other third party payers for health care must equal total income earned by health care providers, administrators and other health care workers.
7) Socioeconomic differences in mortality found in the U.S. are most likely attributable to lack of universal health insurance coverage.
9) A hospital system is rewarded with higher profits in the short term when it implements electronic health records which increase the timeliness of physician and patient communication.
Multiple Choice
11) In which of the following examples does the fundamental theorem of exchange not apply?
a) You pay your optometrist $500 for a new pair of eyeglasses.
b) You donate your old, used eyeglasses to the Lions Club, a charitable organization which recycles and distributes the glasses to needy people.
c) You pay a fertility specialist $10,000 to perform In Vitro Fertilization procedure which does not result in pregnancy.
d) You pay a fertility specialist $10,000 to perform In Vitro Fertilization procedure which results in pregnancy.
e) Unknown to you, your neighbor is tapping into your cable TV service and sharing your service.
13) Buying a hip replacement surgery is different from the assumptions of a purchase in the perfectly competitive market because
a) the seller has an ethical duty to care for you.
b) all buyers are price makers.
c) product characteristics do not vary significantly across providers.
d) information is freely available about surgeons specializing in hip replacements.
e) obtaining Board Certification in Orthopedic Surgery is a relatively quick and uncomplicated procedure.
13) Buying a hip replacement surgery is different from the assumptions of a purchase in the perfectly competitive market because
a) the seller has an ethical duty to care for you.
b) all buyers are price makers.
c) product characteristics do not vary significantly across providers.
d) information is freely available about surgeons specializing in hip replacements.
e) obtaining Board Certification in Orthopedic Surgery is a relatively quick and uncomplicated procedure.
15) Which of the following statements is false? Significant increase in healthcare spending over the past seventy years can in part be explained by the
a) increase in the cost of labor-intensive services.
b) increase in the overall level of medical care prices.
c) increase in intensity and quality of care.
d) increase in the share of the healthcare costs spent on manufactured goods such as drugs.
e) population growth.
17) Scarcity means
a) time and resources spent researching a cure for breast cancer are time and resources that could have been spent researching cures for lymphoma.
b) 25 year olds might be more willing to start a family than 35 year olds.
c) government funding of federal programs equals the amount paid in taxes.
d) all consumers are assumed to have limited financial resources.
e) money flows in a circle.
19) Firms apply marginal analysis to maximize the following production goal:
a) demand.
b) profit.
c) output.
d) prices.
e) total revenue.
21) Investments in human capital include all the following except
a) attending college.
b) saving money for college.
c) exercising.
d) maintaining a healthy weight.
e) immunizing children against diseases.
23) Which of the following statements about the concept of “rationality” is false?
a) Rationality means that people make choices to make themselves better off subject to resource constraints.
b) Rationality means that organizations make choices to meet their objectives (maximize profits, minimize cost, get elected).
c) People and organizations are always perfectly rational in their decisions.
d) Purchasing life insurance to minimize the risk of financial problems for your family is an example of a rational decision.
e) Rationality is a concept that organizes and guides economic analysis, but may sometimes miss the human meaning of transactions in healthcare markets.
Chapter 2: Demand and Supply
True/False
1) The demand for cosmetic surgery is more elastic than the demand for Botox treatments.
3) The Water-Diamonds Paradox is illustrated when water, which is essential for life, trades at a higher price than diamonds, which are not essential for life.
Multiple Choice
5) The market demand curve for aspirin
a) is measured at a specific time and place.
b) is comprised of all the individual demand curves.
c) is a marginal benefit curve.
d) slopes downward because the benefit from the tenth aspirin is much less than the benefit from the first aspirin.
e) all of the above.
7) Price elasticity measures the:
a) change in quantity per unit change in price.
b) change in price per unit change in quantity.
c) percentage change in quantity for each 1% change in price.
d) price sensitivity when quantity purchased changes.
e) quantity divided by price.
9) Health economists observe individuals’ willingness t
o pay by observing not only cash transactions, but also by observing patients’ time spent waiting and/or pain endured to obtain medical services. Examples of observable, non-cash prices paid by patients include all of the following, except
a) a caretaker waits nine months for a family member to receive nursing home care.
b) a patient undergoes experimental cancer vaccine to arrest the growth of a tumor.
c) a patient pays another patient $50 to trade places in the queue at the free clinic.
d) an elderly patient waits eight hours to see a doctor for free at a famous eye clinic.
e) a morbidly obese patient must undergo six months of nutrition counseling prior to undergoing surgery to induce weight loss.
11) Consider the following scenario. A pharmaceutical company has spent 230 million dollars developing and testing a new drug. The company projects the total revenue from sales to be about 850 million dollars over the course of three years after the drug approval by the FDA. The company is close to the completion of the research phase, when they learn that a competing drug has entered the market. Sales projections have been downgraded to 150 million dollars. An investment of an additional 9 million dollars would be required to complete the research and obtain the FDA approval, if the company decides to do so. The cost of producing actual pills, after the research phase is complete, will be close to zero and can be ignored for simplicity. The company should complete the research and launch production of this drug only if the required additional investment does not exceed
a) 3 million dollars.
b) 9 million dollars.
c) 150 million dollars.
d) 230 million dollars.
e) 850 million dollars.
13) Scientific evidence suggests that nurse practitioners (NPs) and physician assistants (PAs) can be considered as substitutes in providing many types of medical care. When hospitals take hiring decisions, the “price” (i.e. salaries) they have to pay for a new NP versus a new PA is one of the deciding factors. If PAs’ salaries have grown substantially during the last 6 months, while there has been no change in the NPs’ salaries, what would happen in the market for nurse practitioners’ services?
a) Supply of NPs to hospitals will increase.
b) Supply of NPs to hospitals will decrease.
c) Hospitals’ demand for NPs will increase.
d) Hospitals’ demand for NPs will decrease.
e) The increase in the salaries of PAs should have no effect on hospitals’ demand for or supply of nurse practitioners’ services.
15) Listed below are possible ways to improve the nation’s health status, except
a) increasing spending on medical care.
b) relaxing the environmental pollution standards.
c) paying for college education for children from low income families.
d) incentivizing consumers to participate in wellness programs, such as weight-loss plans.
e) provide government rebates to consumers for purchasing environmentally friendly vehicles
