Assignment 8

When Cody went to the physician with a sore elbow, after hearing Cody's symptoms and examining the elbow manually, Cody's physician had two options: (1) prescribe an anti-inflammatory drug and advise Cody to abstain from vigorous physical activity for a period; or (2) advise Cody to undergo a magnetic resonance imaging (MRI) exam, a costly diagnostic procedure. Which of the following physicians is more likely to recommend option 2? a) A physician who is compensated under a conventional health insurance plan. b) A physician who is part of an HMO. c) A physician who is concerned about the marginal cost of an MRI. d) All physicians would recommend option 2.

a) A physician who is compensated under a conventional health insurance plan.

Leo is a welfare recipient who qualifies for two means-tested cash benefit programs. If he does not earn any income, he receives $225 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 75 cents until the benefit equals zero. Suppose Leo earns $10. He will lose ______ from each benefit, for a total loss of _____. a) $.75; $1.00 b) $7.50; $7.50 c) $7.50; $15.00 d) $.75; $1.50

c) $7.50; $15.00

The figure below shows Ava's demand curve for days in the hospital. The marginal cost of an additional day in the hospital is $200. If Ava had to pay the entire marginal cost of spending a day in the hospital, then she would choose to stay ______ day(s). a) 0 b) 1 c) 2 d) 3

c) 2

Two companies, Dirty Inc. and Filthy Inc., each of which has access to 5 different production processes, each of which has a different cost and produces a different amount of pollution. The daily costs of the processes and the number of tons of smoke emitted are shown in the table below. Suppose pollution is initially unregulated. If the City Council imposes a tax of $91 per day on each ton of smoke emitted, then total emissions will fall to ______ tons of smoke per day. a) 1 b) 2 c) 4 d) 8

c) 4

Two companies, Dirty Inc. and Filthy Inc., each of which has access to 5 different production processes, each of which has a different cost and produces a different amount of pollution. The daily costs of the processes and the number of tons of smoke emitted are shown in the table below. If pollution is unregulated, then a total of ______ tons of smoke will be emitted each day. a) 1 b) 2 c) 4 d) 8

d) 8

The earned income tax credit (or EITC): a) reduces the tax rate on investment income. b) provides tax credits to firms who hire low-income workers. c) reduces the sales tax paid by low-income workers. d) gives low-income workers credits on their federal income taxes.

d) gives low-income workers credits on their federal income taxes.

The most efficient distribution of pollution abatement is such that the: a) extent of pollution abatement is the same across all geographic regions. b) extent of pollution abatement is the same across all polluters. c) largest reductions in pollution are made by the largest polluters. d) marginal cost of abatement is the same across all polluters.

d) marginal cost of abatement is the same across all polluters.

A program under which the government gives all citizens a substantial lump sum payment that is financed by a tax earned income is termed a(n) ______. a) positive income tax. b) in-kind transfer. c) unearned income tax credit. d) negative income tax.

d) negative income tax.

Two companies, Dirty Inc. and Filthy Inc., each of which has access to 5 different production processes, each of which has a different cost and produces a different amount of pollution. The daily costs of the processes and the number of tons of smoke emitted are shown in the table below. Suppose pollution is initially unregulated. If the City Council requires each firm to reduce emissions by 50 percent, then the total cost to society of this policy will be ______ per day. a) $360 b) $380 c) $490 d) $870

a) $360

In the United States, the emergence of the third-party payment system has: a) led health care costs to decrease over time. b) led health care costs to increase over time. c) had almost no impact on health care costs. d) led people to consume less than the socially optimal level of health care.

b) led health care costs to increase over time.

If fewer families choose to purchase medical insurance because of rising health insurance premiums, then: a) those who remain insured will tend to spend less on health care. b) those who remain insured will tend to have higher-than-average rates of illness. c) the frequency of illness in the general population will fall. d) those who remain insured will tend to have lower-than-average rates of illness.

b) those who remain insured will tend to have higher-than-average rates of illness.

A socially optimal public health policy should expand the proportion of the population vaccinated: a) whenever the marginal benefit of an additional vaccination is positive. b) until the marginal cost of an additional vaccination equals the marginal benefit of an additional vaccination. c) until the marginal benefit of an additional vaccination equals zero. d) until the marginal benefit of an additional vaccination is greater than the marginal cost of an additional vaccination.

b) until the marginal cost of an additional vaccination equals the marginal benefit of an additional vaccination.

If the marginal benefit of additional spending on a public health measure is greater than its marginal cost, then total economic surplus a) will decrease if the government increases spending on the health measure. b) will increase if the government increases spending on the health measure. c) has been maximized. d) is equal to zero.

b) will increase if the government increases spending on the health measure.

When the government transfers resources to the poor in the form of a good or service, it is called: a) the Earned Income Tax Credit (EITC). b) Temporary Assistance to Needy Families (TANF). c) an in-kind transfer. d) a regressive tax.

c) an in-kind transfer.

The growth of medical insurance in general and first-dollar coverage specifically has reduced the marginal cost of treatment to the consumer. Therefore, the current level of medical treatment in the United States is: a) equal to the efficient level. b) less than the efficient level. c) greater than the efficient level. d) less than or equal to the efficient level.

c) greater than the efficient level.

According to the textbook, the percentage of gross domestic product devoted to healthcare between the years 1940 and 2013: a) declined from 4% to less than 2%. b) increased from 4% to about 6%. c) increased from 4% to more than 17%. d) increased from 4% to more than 40%.

c) increased from 4% to more than 17%.

The overconsumption of medical care due to first-dollar health insurance coverage is: a) larger the lower the elasticity of demand for medical care. b) smaller the higher the elasticity of demand for medical care. c) larger the higher the elasticity of demand for medical care. d) small regardless of the elasticity of demand for medical care.

c) larger the higher the elasticity of demand for medical care.

Private markets will lead to a ______ vaccination rate because: a) socially optimal; price serves as a signal of marginal benefit and marginal cost. b) suboptimally high; the external cost of being vaccinated would not fully be taken into account by decision makers. c) suboptimally low; the external benefit of being vaccinated would not fully be taken into account by decision makers. d) inequitable; health care services should not be provided based on ability to pay.

c) suboptimally low; the external benefit of being vaccinated would not fully be taken into account by decision makers.

If the marginal cost of pollution abatement is smaller for large firms than it is for small firms, then it is efficient for: a) small firms to reduce pollution by more than large firms. b) small firms and large firms to reduce pollution by a fixed proportion. c) small firms and large firms to increase pollution by a fixed proportion. d) large firms to reduce pollution by more than small firms.

d) large firms to reduce pollution by more than small firms.

To say that a given welfare program is means-tested implies that: a) in order to qualify, one must have the means. b) the size of the payment reflects the mean value of consumption based on family size. c) in order to qualify, one must show that one means to find a job. d) the more income one earns, the smaller the size of the benefit.

d) the more income one earns, the smaller the size of the benefit.