Econ 407 Test 1

The equity-efficiency trade-off means that obtaining _____ in equality may also lead to _____ in the so-called size of the pie.

an increase; a decrease

Which type of government intervention can be used to lower the price for private sales or purchases of underproduced goods?

subsidies

Say's Law

supply creates its own demand

According to a 2012 study by the Institute of Medicine, the main areas of wasteful spending in health care include:

inflated prices, excess administrative costs, and unnecessary services.

One reason employers are the predominant source of health insurance is because:

insuring at the firm level allows insurers to create large insurance pools with a predictable distribution of medical risk.

As Sam moves rightward along his indifference curve, his marginal rate of substitution

is diminishing

The U.S. has _________________ people in prison.

2.2 million

Agriculture constituted approximately ______% of the U.S. economy in 1776 and about _____ today

90%, 2%

Which of the following is a likely consequence of the current system of financing long-term care?

Individuals have an incentive to hide their wealth.

An example of an activity that generates an external cost is

dumping soapsuds into a trout stream.

The Medicare insurance program in the United States reimburses hospitals and doctors for providing health care services to the elderly. This is an example of:

public financing of private provision.

An intervention in which government establishes a federally funded health care service for everyone and pays doctors and medical practitioners directly is called:

public provision.

When consumption of a good is nonrival, nonexcludable, and indivisible the good is a

pure public good.

A public national health insurance system likely will:

require massive new government expenditures.

Food is an example of a ________ good.

rival and excludable

Private goods are:

rival and excludable

To two hunters, a deer running in a forest is

rival and nonexcludable

A common property resource (i.e. Tragedy of the Commons) is ________ and ________.

rival; nonexcludable

Keynes' Law

"demand creates its own supply"

Paul Krugman

Keynesian economist

Which of the following provides coverage for prescription drug expenditure for the elderly?

Medicare Part D

Great Depression vs Great Recession

Great Recession worse since great depression

According JP Morgan, The trade war with China will ________ the average U.S. household

cost, $200

Which elasticity of demand with respect to health care would have the highest deadweight loss of insurance coverage, all other things equal?

-3

In 2017, health care spending in the United States accounted for approximately _____ of GDP.

17.9%

Jake plans to spend $100 on fried chicken and Pepsi. The price of a fried chicken is $5 and Pepsi is $2 per bottle. If Jake buys 10 fried chickens how many bottles of Pepsi can he buy?

25

What portion of the population is uninsured?

49 million

liquidity trap

An economic condition where interest rates are very low or zero, inflation is low or negative and expansionary monetary policy

The political party that emphasizes the role of market failure in today's economic problems is called the ___________ Party

Democratic

Which of the following is a reason the high number of uninsured may be a problem?

Because the uninsured may receive uncompensated care, the necessary cost shifting increases the prices for insured patients.

Suppose that you buy a lot of music and that the prices of CDs go up. The substitution effect means that you buy fewer CDs because:

CDs are more expensive relative to other goods

Social interest

Choices that are best for society as a whole

The economic school of thought that emphasizes the role of government failure in today's economic problems is called the ___________ school

Classical

If an insured patient pays the full cost of the first $5,000 of medical expenses per year, what is that $5,000 amount called?

Deductible

Suppose that to estimate the effect of Medicaid on health status, a researcher compares those who choose to enroll in the program to those who are not enrolled. Which of the following would cause the resulting estimate to be biased?

Eligibility for Medicaid is established by factors that might also affect health.

Which legislation made it the official position of the U.S. government to promote a full-employment economy

Employment Act of 1946

The U.S. health care system is the "best in the world" by international standards.

False

Fredrick von Hayek

Famous classical economist

The U.S. has the highest standard of living in the world (excluding outliers) as measured by per capita GDP. According to Jones and Klenow, if we factor in leisure, longevity, and income distribution, the U.S. has the same average quality of life as:

France

Which of the following is TRUE regarding the cost-effectiveness of the Medicaid expansions?

It costs Medicaid less to save an infant life than it does to save a life through seat-belt safety.

According to the notion that flat-of-the-curve medicine is practiced in the United States, which of the following best describes the marginal health benefit from the next dollar of medical spending?

It decreases as more is spent on health care.

Suppose that you want to estimate how health insurance affects the mobility rate of workers. Which of the following is a problem with identifying this effect when you compare the mobility rate of those who have insurance with that of those who do not have insurance?

Jobs that offer health insurance may be better in other ways (e.g., pension plans or vacation).

All points below a given indifference curve are

Less preferred to any point on the indifference curve

Let MUa and MUb stand for the marginal utilities of apples and bagels. Let Pa and Pb stand for their prices. The general necessary condition for consumer equilibrium is

MUa/ Pa = MUb/ Pb.

A person with health insurance, that pays 80% of the cost of all medical services, consumes:

More than the socially optimal amount of medical services since the marginal cost is so low.

Why did so few of those made eligible, as a result of the expansions of Medicaid in the 1980s and 1990s, actually enroll in the program?

Most of these individuals already had private insurance.

The "legs" of the Keynesian social safety net in the U.S. include

New Deal (1930s), Great Society (1960s), and Great Regulation (1970s).

Pure public goods are:

Non-rival, non-divisible, and non-excludable

For which of the following events is the consumption-smoothing benefit from first-dollar coverage small?

Predictable Events

Which of the following is NOT true regarding health care in the United States?

Prescription drug spending accounts for almost half of health spending

iron law of price

Price has to rise initially in the short-run in order for it to fall in the long-run

Classical Focus

Pure free-market economists believe that the government should only provide the infrastructure that allows markets to function freely

Common property goods are:

Rival and non-excludable

Which of the following is NOT true regarding coverage gaps in Medicare?

Seniors are not able to fill coverage gaps in Medicare, as they are not eligible for other programs.

Which of the following is TRUE when a consumer is maximizing her utility?

She consumes at the point at which her budget constraint is tangent to her indifference curve.

What infamous trade legislation worsened the Great Depression

Smoot Hawley

Which of the following explains why nearly all firms with more than 50 employees offer health insurance, while only 29% of firms with fewer than 50 employees provide health insurance?

The expected expenditure per worker is more predictable for large firms than it is for small firms.

Personal Distribution of Income

The pattern or the distribution of national income received by the different classes or income groups in society

Sara has an HMO insurance policy through her employer. She undergoes a $1,000 necessary medical procedure, and her insurance does not cover any of it. Which of the following is likely true?

The procedure was performed by a doctor outside the network.

Macroeconomics

The study of the economy as a whole

quasi-public goods

These are goods that have some, but not all, the characteristics of purely public goods.

Which of the following is TRUE regarding uninsured individuals in the United States, on average?

They have lower-than-average incomes.

The majority of economists favor less restrictive immigration policies in the U.S

True.

Which country has the highest health care costs in the world as a % of GDP?

U.S.

Which country has the highest incarceration rates in the world?

US

Differences in income are most directly related to which of the following economic question?

Who consumes the goods and services that are produced?

Classical economists believe the economy is analogous to

a Swiss watch

The assumption that the magnitude of the slope of an indifference curve decreases moving to the right along the indifference curve is known as the assumption of

a diminishing marginal rate of substitution.

Definition of Economics

a discipline that studies the allocation of scarce resources to consumers with unlimited wants and desires.

Medicaid

a federal and state program that helps with medical costs for some people with limited income and resources.

Adjusted for inflation the price of gasoline today of about $2.70 per gallon is

about average over the last century in the U.S.

A price floor is a price _______________ equilibrium in a market imposed by the government and creates a _______

above, surplus

Marginal utility measures the

additional utility from an additional unit of consumption.

Medicare provides health insurance primarily to:

all elderly over age 65.

Economists believe that

all human activity has an opportunity cost all resources are scarce consumer wants are unlimited

The term ceteris paribus means

all other things remaining equal.

Keynesian economists believe the economy is analogous to

an old Idaho pickup.

Keynesian Focus

argue the government should be involved in all functions of government

The Patient Protection and Affordable Care Act:

bans insurers from denying coverage for pre-existing conditions.

The _____________ theory of financial panics and recessions is held by classical economists.

bounce

self-interest

choices that you think are best for you.

freshwater economics

classical

When external benefits are present

competitive markets are inefficient.

Which of the following is the percentage of each medical bill (e.g., 20%) that the patient pays rather than a flat dollar amount?

coninsurance

A negative externality is a

cost that arises from production and falls on someone other than the producer.

positive economics

deals with facts. The statement: "The national debt is approximately 10 trillion dollars" is a positive statement.

The accumulation of past deficits over time is measured by the

debt

When a bank failed in the Great Depression

depositors usually lost all of their money.

A free rider is someone who

enjoys the benefits of a good without paying for it

The big economic tradeoff is between

equity and efficiency

Retrospective reimbursement provides financial incentives for _____ medical care; prospective reimbursement provides financial incentives for _____ medical care.

excessive; insufficient

Keynesian economists support:

expanded social safety net. expanded fiscal policy. expanded regulation of the financial markets. expanded monetary policy.

Classical economists tend to oppose the Paul Ryan budget

false

John Maynard Keynes

helped elevate macroeconomics in importance. supported greater government intervention in the economy. was supported by most Democratic Party presidential candidates. was the most famous economist of the 20th century.

As the case of McAllen, Texas, shows, there are significant differences in spending under Medicare across health referral regions (HRRs). Which factor primarily explains these differences?

higher utilization of health services in some areas than others

When China builds a dam using few machines and a great deal of labor, it is answering the ________ question

how

splat theory

if you let everything go down...it will stay down possibly for a generation

Which of the following is NOT a finding from recent studies examining the impact of the ACA on insurance coverage?

increased quality of dental care

If it is impossible or very costly to prevent someone from benefiting from a good even if the person does not pay for it, the good is

nonexcludable.

saltwater economics

keynesian

Factors of production include

land, labor, capital and entrepreneurship.

Scarcity arises from

limited resources and limitless wants.

In every economic system, choices must be made because resources are ________ and our wants are ________

limited; unlimited

In an indifference curve/budget line diagram, a consumer will select the combination of goods that is on the budget line and for which the

marginal rate of substitution between two goods is equal to the relative price of the two goods.

The Keynesian school believes the most economic problems are caused by

market failure.

The inability of the free market and capitalism to efficiently allocate resources is called:

market failure.

When markets leads to inefficiency, it is known as

market failure.

Which of the following is the BEST example of a pure public good

national defense

Except for perfect complements, an indifference curve has a ________ slope and becomes ________ moving to the right.

negative; flatter

The results of the growing body of research on health care spending in the United States have:

not been incorporated in the system, and health care costs as well as the number of unnecessary or ineffective procedures have risen.

Institutional care is provided in _____ and accounts for _____ of long-term care costs.

nursing homes; 66%

functional distribution of income

o Land earns rent. o Labor earns wages. o Capital earns interest. o Entrepreneurship earns profit.

The loss of the highest-valued alternative defines the concept of

opportunity cost.

Left uncorrected, a negative externality leads to the:

over production of a good

All points above a given indifference curve are

preferred to any point on the indifference curve.

The ________ effect can be divided into the ________ effect and the ________ effect.

price; substitution; income

Medicare

primarily provides health insurance for Americans aged 65 and older, but also for some younger people with disability

Saltwater economists are

situated primarily on the east coasts and west coast universities. prefer greater government intervention in the macro economy. Keynesian economists.

An negative externality occurs when

some of the costs of producing a good are paid by someone other than the producer.

On the issue of agriculture price supports and subsidies, economists (on average)

strongly oppose.

On the issue of free trade, economists (on average):

strongly support

Microeconomics

study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments.

normative economics

subjective individual preferences. Normative statements usually include qualifiers such as "should be" or "ought to be." The statement: "We should cut taxes to improve productivity and growth in the economy"

The primary cause of job losses over time (long term) in most industries is:

technological change

Which of the following has been found to be the primary cause of the rapid rise in health care costs?

technological change in the delivery of health care

Marginal cost is the cost

that arises from an increase in an activity

Marginal cost is the cost

that arises from an increase in an activity.

Suppose that you have private health insurance. Last year you were injured once, which represented the only time you had a medical expense. At the time, you paid $25 to see the doctor, who referred you to a specialist. The total bill for the specialist was $1,100. You paid the first $500, then 10% of the additional $600 (equal to $60). Which of the following is the copayment?

the $25 paid for the doctor visit

Suppose that you have private health insurance. Last year you were injured once, which represented the only time you had a medical expense. At the time, you paid $25 to see your doctor, who referred you to a specialist. The total bill for the specialist was $1,100. You paid the first $500, then 10% of the additional $600 (equal to $60). Which of the following is the deductible?

the $500 you paid toward the cost of the specialist

Milton Friedman argued

the U.S. should drop all of its trade barriers even if other countries do not drop their trade barriers.

Consumer surplus can be defined as the difference between:

the demand curve and the price of the good.

post hoc fallacy

the error of reasoning that a first event causes a second event because the first occurs before the second.

fallacy of composition

the false statement that what is true for the parts is true for the whole or what is true for the whole is true for the parts.

Medicare is administered by _____ and is financed by _____.

the federal government; a payroll tax

Opportunity cost is defined as

the highest-valued alternative given up.

The benefit that arises from an increase in an activity is called

the marginal benefit.

The marginal rate of substitution is

the rate at which the consumer will give up one good to get an additional unit of another good while remaining on the same indifference curve.

As a result of the move to a Prospective Payment System (PPS):

the rate of growth of hospital costs fell significantly immediately after the PPS was implemented

The price elasticity of demand measures

the responsiveness of the quantity demanded to changes in price.

Human capital is

the skill and knowledge of workers.

According to Adam Smith, individuals acting in their own self-interest in the market place are also unintentionally acting in the social interest

true

Free market economists (classical) are more likely to be allied with Republicans than are Keynesian economists who are more likely to be allied with the Democrats

true

If the income effect is greater than the substitution effect of a wage increase in our work-leisure tradeoff, work hours will decline.

true

Keynes Law: Demand creates its own supply; implies there cannot be insufficient aggregate supply and implies demand-caused recessions

true

The iron law of price is that it must rise before it can fall when a shortage occurs

true

The 2007-2009 recession: (Class Discussion)

was the worst recession since 1937-1938 recession.

When a country decides to produce fewer bombers and more public housing projects, it is answering the ________ part of one of the two big economic questions

what

When a firm decides to produce more electric cars and fewer gas guzzlers, it is most directly answering the ________ question

what

The fallacy of composition is the false belief that

what is true for each part is also true for the whole

When your income increases,

your budget line shifts rightward and its slope does not change.

Following marginal cost pricing, if there is excess capacity in a classroom the marginal cost of filling that seat to the university is

zero