Macroeconomics HW 2

In what ways is the market for health care in the United States similar to the markets for other goods and services?

-consumers of health care make the decisions about how much they wish to consume -health care sellers are primarily private firms

Health care system descriptions: Canada Japan The UK The US

-has a single-payer health care system where the government provides national health insurance to all residents -has a system of universal helath insurance under which every resident is required to either enroll in a non- profit health insurance society or in a government health insurance program -the government owns most hospitals and employs most doctors, so the health care system if referred to as a socialized medicine -most people have private health insurance through employers, with the government also providing insurance to the poor, aged, and military veterans

Describe changes over time in the health of the average person in the United States

-mortality rates have decrease -obesity has increased -life expextancy at birth has increased -the likelihood of death in the first months of life has fallen

Explain the health of people in the US during the past 150 years

-the average person has become taller -infant mortality has decreased -life expextancy has more than doubled

Economists define economic efficiency in this way

-to help policymakers understand the negative consequences of price ceilings -to help policymakers understand the negative consequences of taxes -to illustrate the benefits of a competitive market equilibrium -to help policymakers understand the negative consequences of price floors

The overall mortality rate in the US decreased by more than 25% b/t 1981 & 2009. Which of the following is not a cause of this decline.... A. cancer B. diabetes C. heart attacks D. liver disease E. smoking

B. diabetes

One of the most important differences among health care systems in different countries is how people pay for the health care they recieve. What country has a single-payer health care system

Canada

Can economic analysis provide a final answer to the question of whether the government should intervene in markets by imposing price ceilings and price floors? Why or why not?

Economic analysis cannot provide such an answer because it seeks to address positive questions such as "what is."

T or F. Consumer surplus and producer surplus measure the total benefit consumers and producers receive from participating in a market.

FALSE. Consumer surplus measures the NET benefit consumers receive, and producer surplus measures the NET benefit producers receive.

Should government officials use regulations to try to provide dependable incomes to every business in the country?

It is very difficult to conceive of any scenario in which such an effort would improve economic efficiency.

A newspaper headline reads: "State Officials Take on Pricing Regulations to Try to Provide Better, Dependable Income to Dairy Farmers." Is providing dependable income to dairy famers a good policy goal for government officials?

Maybe, but only if doing so promotes economic efficiency

Does it matter whether buyers or sellers are legally responsible for paying a tax

No, the market price to consumers and net proceeds to sellers are the same independent of who pays the tax

Do the people who are legally required to pay a tax always bear the burden of the tax? Briefly explain

No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government

Why do some consumers tend to favor price controls while others tend to oppose them?

Price ceilings generate shortages. Consequently, the consumers who obtain the product at a lower price win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage

Briefly explain whether you agree or disagree with the following statement: "If there is a shortage of a good, it must be scarce, but there is not a shortage of every scarce good."

The statement is correct because every good (except undesirable things) is scarce

In attempting to compare health care outcomes across countries, a problem encountered is

a lack of data consistency, distinguished health care effectiveness from lifestyle choices, getting an accurate measurment of health care delivery, properly assessing consumer prefrences

A black market is

a market in which buying and selling occur at prices that violate government price regulations

Economic efficiency

a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum

Government officials are likely to try to achieve this goal using pricing regulations by establishing

a price floor for milk

The phrase "health care outcome" refers to

any indicator of societal health

Compared with those of other high income countries, health care outcomes in the US are

better on some indicators, inferior on others

In the market for health insurance, asymmetric information problems arise because

buyers of health insurance policies always know more about the state of their health than do the insurance companies

Health insurance companies deal with asymmetric info problems by

conducting their own medical exams, agreeing to pay only a percentage of any claim, limiting the coverage of pre exsisting conditions

If marginal cost is greater than marginal benefit (just as when marginal benefit is greater than marginal cost), there will be

deadweight loss

Consumer surplus (and producer surplus) could increase by decreasing ______ ______.

economic efficiency

The public health movement in the United States in the late 19th and early 20th centries was like a technological advance to the country's PPF, since both _______ the economy's productive capacity, the former by increasing the nation's _______ ________.

expanded; effective workforce

If San Francisco were to repeal its rent control law, the prices for short rentals in the city listed on Airbnb and other peer-to-peer sites would likely

fall because more housing units would become available as the average rent increased.

The main sources of health insurance in the US include

household co-operatives, or co-ops

Does an increase in economic surplus in a market always mean that economic efficiency in the market has increased?

if the marginal cost of production decreases but market output remains unchanged, then economic surplus and deadweight loss would both increase, decreasing economic efficiency

According to economists, an efficient tax is one that

imposes a small excess burden relative to the tax revenue it raises.

Increases in a country's income can improve health by

improving food distribution, accelerating medical research, improving sanitary conditions

Black markets may arise

in reaction to binding price floors

As the price of goods rises, producer surplus _________, and as the price of a good falls, producer surplus _________.

increases; decreases

Improvements in the health of the average American caused the U.S. production possiblities fronteir to shift out primarily by

increasing the country's effective workforce

Suppose your friend tells you that he recently purchased a particular product for $1,000 but he considers the product to be "priceless." Assume your friend was not exaggerating, and really considers the product "priceless." His consumer surplus for this product would be

infinite because your friend's willingness to pay is infinite

An extrernality

interferes with the economic efficiency of market equilibrium, refers to a benefit or cost of an economic activity that affects someone who is not directly associated with it, may require government intervention

Life expectancy in the US declined b/t 1916 and 1918. This decline likely caused the US PPF to shift _____ because it signified a resource base made smaller by a less effective ______.

inward; workforce

Economic efficiency

is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production, is a market outcome in which the sum of consumer surplus and producer surplus is at a maximum

The data on the realtionship between health care spending per person and income per person shows that health care

is a normal good

The Patient Protection and Affordable Care Act (ACA)

is recently enacted legislation that significantly reorganizes the US health care system

Adverse selection

is the situation in which on party to a transaction takes advantage of knowing more than the other party to the transaction

Why is the supply curve referred to as a marginal cost curve

it shows the willingness of firms to supply a product at different prices

Economic efficiency declines if price falls below the ______ _______.

market equilibrium

A price ceiling is legally determined _______ price that sellers may charge. A price floor is legally determined ______ price that seller may receive.

maximum; minimum

Consumer and producer surplus measure the ________ benefit rather than the _______ benefit.

net; total

"Rent controls, government farm programs, and other price ceilings and price floors are bad." This is an example of a......

normative statement. The statement is concerned with what should be.

Asymmetric information

occurs when one party to an economic transaction has less info than the other party

Consumer surplus differs from the total benefit consumers receive from purchasing products because it measures

only the net benefit to consumers from participating in the market, the total benefit of participation less the amount paid to acquire the products.

Examples of activities that generate externalities in the market for health care

people receiving vaccinations, individuals engaging in injurious or reckless lifestyle choices

Consumer surplus will equal the total benefit consumers receive consuming a product in the special case when

price is zero

Do producers tend to favor price floors or price ceilings? Why?

producers favor price floors because, when binding, price floors increase price above the equilibrium and may increase producer surplus.

Moral hazard

refers to actions people take after they have entered into a transaction that make the other party transaction worse off

Principal-agent problem

results from agents pursuing their own interests rather than the interests of the principals who hired them

When the government imposes price floors or price ceilings,

some people win, some people lose, and there is a loss of economic efficiency

Tax incidence indicates

the actual division of the burden of a tax

Tax incidence is

the actual divison of the burden of tax b/t buyers and sellers in a market

Marginal benefit

the additional benefit to a consumer from consuming one more unit of a good or service

Marginal cost is

the additional cost of producing one more unit

Consumer surplus is

the difference between the highest price a consumer is willing to pay and the price the consumer actually pays

Producer surplus is

the difference between the lowest price a firm would be willing to accept and the price it actually receives

A student argues: "Economic surplus is greatest at the level of output where the difference between marginal benefit and marginal cost is largest." This statement is false because

the level of output where the difference between marginal benefit and marginal cost is largest will be below the output level needed to have the maximum economic surplus.

Economic surplus

the sum of consumer surplus and producer surplus

Comparisons of helath care outcomes across countries often concentrate on measures such as life expectancy and infant mortality since

they are among the easiest outcomes to measure because a specfic event (death) has occured