HSMA 4080 HEALTHCARE ECONOMINCS

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1. In the table above, calculate the opportunity cost x (in foregone butter) for the first 100 guns. a. 10 units of butter. b. 50 units of butter. c. 100 units of butter. d. 200 units of butter.

B 50 units of butter

QALYs place a higher value on ________ because rich and poor people are evaluated ______. a. equity; similarly b. efficiency; similarly c. efficiency; differently d. equity; differently

a. equity; similarly

The Stern Report seeks to discount $6,000 billion of annual benefits occurring 100 years from now. If these are discounted at a rate of 2%, the present discounted value of the benefits will be approximately: a. $828.2 billion. b. $455.7 billion. c. $118.8 billion. d. There is not enough information provided.

a. $828.2 billion.

Suppose, Sam has the opportunity for a treatment that will extend his life by one year with a probability of 0.9, by two years with a probability of 0.5, and three years with a probability of 0.3. Sam will die with certainty after three years. QALY weight q1 is 0.9 in Year 1, q2 is 0.6 in Year 2, and q3 is 0.2 in Year 3. The discount rate is 0.05 per year. The total number of discounted QALYs from this treatment is: a. 1.1. b. 1.3. c. 1.7. d. 2.1.

a. 1.1

In the figure above, at quantity equal to 50, the sum of the producers' and the consumers' surpluses is: a. 475. b. 425. c. 325. d. 225.

a. 475

In the figure above, the total costs of 15,000 inoculations are $15,000. At this level of inoculations, the benefit-cost ratio is: a. 5.5. b. 5.0. c. 3.0. d. 2.0.

a. 5.5

Suppose at point B that chicken increases in price and beef does not. Which point represents the most plausible new equilibrium for the consumer? a. Point A b. Point B c. Point E d. Point F

a. Point A (less chicken, same meat, line GD eq=A

14. In the figure above, in contrast to a perfect competitor, who equalizes marginal cost and product price, the monopolist optimizes at ________. a. point A b. point B c. point C d. maximum price

a. Point A (monopoly optimizes where marginal revenue=marginal cost)

Comparing the "cost/cancer" saved of various screening programs is an example of _______ analysis: a. cost-efficiency b. cost-benefit c. economic efficiency d. All of the above.

a. cost-efficiency

Mortality refers to __________ whereas morbidity refers to __________. a. death rates; disease rates b. disease rates; death rates c. fertility rates; illness rates d. levels of illness; levels of nutrition

a. death rates; disease rates

Hospital D does emergency care only, and has total costs of $1,000,000 for output of 100 patients per day, and total costs of $1,500,000 for 200 patients per day. Hospital D has: a. economies of scale. b. diseconomies of scale. c. economies of scope. d. diseconomies of scope.

a. economies of scale.

3. As Kathy's wealth increases: a. her total utility increases. b. her marginal utility of wealth increases. c. her average utility of wealth increases. d. none of the above are true.

a. her total utility increases

Studies have found that higher levels of prescription drug use are positively correlated with life expectancies. This means that: a. prescription drugs are productive in improving people's health. b. people with higher incomes consume more prescription drugs. c. national health insurance leads people to buy more prescription drugs. d. countries should shift their spending from education to prescription drugs.

a. prescription drugs are productive in improving people's health.

If nursing home studies do not control for the presence of private duty staff (paid for by the residents), they may confuse: a. quality with increased inputs. b. case difficulty with nursing home inefficiency. c. nonprofit with for-profit nursing homes. d. nursing home costs with nursing home patient counts.

a. quality with increased inputs.

The elasticity of substitution measures: a. the responsiveness of the firm's input ratio to changes in the relative input prices. b. all combinations of inputs that can produce a given level of output. c. the slope of the isoquant. d. the rate at which firms can substitute output and still keep inputs constant.

a. the responsiveness of the firm's input ratio to changes in the relative input prices.

If there was perfect competition in the industry, total economic profits would be: a. zero. b. positive because firms must earn profits to stay in business. c. positive because price exceeds average costs. d. negative because competition forces firms to lower prices to stay in business.

a. zero.

Consider a project with costs of $10 million per year for 10 years. Assuming that the costs are paid the last day of each year, the present discounted value of these costs, using a 4% discount rate is ___ million: a. $100 b. $81.1 c. $77.2 d. $44.3

b $81.1

Consider a project with 1 per year for 10 years. Assuming that the costs are paid the last day of each year, the present discounted value of these costs, using a 5% discount rate is ___ million: a. $100 b. $77.2 c. $66.5 d. $44.3

b. $77.2

14. Suppose in a given country that the expected life span is 70 years. Health policy-makers increase health care spending by 10% and the lifespan rises to 71 years. The elasticity of lifespan with respect to health care spending is: a. 0. b. +1/7 c. +4/7 d. +1.

b. +1/7

In problem (12), with a 4% discount rate, the benefit-cost ratio is: a. 0.94. b. 1.06. c. 1.18. d. 2.17.

b. 1.06

In the figure above, the market benefit/cost ratio at quantity equal to 50 is: a. 1.0. b. 1.5. c. 2.5. d. 5.0.

b. 1.5

A study finds that the marginal rate of technical substitution between physicians and nurses is -0.5. How many physicians are required to replace four nurses, and still produce the same amount of output? a. 0.5 b. 2.0 c. 4.0 d. 8.0

b. 2.0

In the figure above, if there was perfect competition in the industry, the market price would be: a. P1. b. P2. c. P3. d. None of the above.

b. P2

The following did NOT contribute to the reduction of mortality rates in the nineteenth century. a. Improved nutrition. b. The development of antibiotics. c. Improved sanitation with respect to airborne diseases. d. Improved sanitation with respect to waterborne diseases

b. The development of antibiotics.

In the figure above: a. The most cost-efficient allocation is where QALYA = QALYS. b. The most cost-efficient allocation is where 1 QALY for Adam trades off for 1 QALY for Steve. c. Adam gets all of the QALYs. d. Steve gets all of the QALYs.

b. The most cost-efficient allocation is where 1 QALY for Adam trades off for 1 QALY for Steve.

A project has costs of $10 million per year for 10 years. The benefits of $30 million per year occur in years 7, 8, 9, and 10. At a 5% discount rate, is this project socially desirable? (Assume that costs and benefits accrue on the last day of each year.) a. The project is socially desirable; net benefits are $20 million. b. The project is socially desirable; net benefits are $2.2 million. c. The project is socially undesirable; net benefits are -$0.7 million. d. The project is socially undesirable; net benefits are -$20 million.

b. The project is socially desirable; net benefits are $2.2 million.

If hospital studies do not control for case-mix, they may confuse: a. quantity with quality. b. case difficulty with hospital inefficiency. c. nonprofit with for-profit hospitals. d. hospital costs with hospital patient counts.

b. case difficulty with hospital inefficiency.

In the figure above, for a fixed level of resources, it is: a. cheaper to provide QALYs for Adam than for Steve. b. cheaper to provide QALYS for Steve than for Adam. c. the same cost to provide QALYs for either. d. more equitable to provide QALYs for Adam.

b. cheaper to provide QALYS for Steve than for Adam.

Suppose that cost per day of treatment rises by 10% in a given year. If the quality of treatment per day rises by 8%, then: a. cost per quality-adjusted day has risen by 18%. b. cost per quality-adjusted day has risen by 2%. c. cost per quality-adjusted day has fallen by 2%. d. cost per quality-adjusted day has fallen by 80%.

b. cost per quality-adjusted day has risen by 2%.

Refer to the figure above. Panel A illustrates a cost _______ technological change and panel B a cost _______ technological change moving from Q to Q. a. increasing; decreasing b. decreasing; increasing c. decreasing; decreasing d. increasing; increasing

b. decreasing; increasing

Refer to the figure below. Panel A illustrates a cost _______ technological change and panel B a cost _______ technological change. a. increasing; decreasing b. decreasing; increasing c. decreasing; decreasing d. increasing; increasing

b. decreasing; increasing

Social capital may improve health because people: a. eat healthier when they have larger numbers of social contacts. b. get more and better information on healthful behaviors and health purchases. c. spend more time indulging in risky behaviors. d. Answers (a) and (c) are correct.

b. get more and better information on healthful behaviors and health purchases.

In some pioneering work, Jack Hadley calculated that the elasticity of mortality with respect to cigarette sales was 0.053. This implies that: a. doubling cigarette sales increases health by 5.3%. b. halving cigarette sales increases health by 2.65%. c. increasing cigarette sales by 1% decreases health by 5.3%. d. decreasing cigarette sales by 1% decreases health by 5.3%.

b. halving cigarette sales increases health by 2.65%.

At a health screening, Kathy found that she had a BMI of 31. She immediately began a diet to lose 25 pounds over the following year. The diet is an example of: a. health capital consumption. b. health capital investment. c. neither consumption nor investment. d. both consumption and investment.

b. health capital investment.

At ____ interest rates, the opportunity cost of capital ____: a. lower; increases b. higher; increases c. zero; is zero d. zero; is infinite

b. higher; increases

With interest rates close to zero since 2010, one might expect the level of health investment to have: a. decreased because people have less income. b. increased, because the opportunity cost of capital has decreased. c. decreased, because the opportunity cost of capital has increased. d. stayed constant because income levels have not changed.

b. increased, because the opportunity cost of capital has decreased.

Suppose that schooling increases the marginal utility of health. Using the figure above with problem (18), the optimal allocation to health production: a. stays the same. b. increases. c. decreases. d. is not affected by schooling.

b. increases

In the figure above, the curved lines refer to: a. downward sloping demand curves. b. indifference curves where utility is constant. c. marginal utility curves, relating beef to chicken. d. total utility curves relating income to chicken.

b. indifference curves where utility is constant

If a $100 billion increase in funding for health care increases average life years by 0.76 life years: a. it is a poor investment. b. it may be a good investment, depending on the alternative uses of the funds. c. it is a good investment only if it helps the poor. d. the funds would be better spent on schooling.

b. it may be a good investment, depending on the alternative uses of the funds.

The BMI helps to measure obesity. All else equal, an increase in a person's height ___ the BMI because _____. a. raises; taller people are fatter. b. lowers; holding weight constant, BMI must fall. c. raises; holding weight constant, BMI must rise. d. does not change; weight has not changed.

b. lowers; holding weight constant, BMI must fall.

When marginal products approach 0: a. average cost rises quickly. b. marginal cost rises quickly. c. marginal valuation plummets. d. answers (a) and (b) are both correct.

b. marginal cost rises quickly.

In the figure above, marginal revenue is less than price because: a. perfect competition affects monopolists differently than competitors. b. monopolists must charge consumers more to earn higher profits c. monopolists must lower prices to existing customers in order to sell more units. d. Answers (b) and (c) are correct.

b. monopolists must charge consumers more to earn higher profits

If Joe weights 80 kg and is 1.9 meters tall (pretty tall), his BMI is ____. a. underweight b. normal weight c. overweight d. obese

b. normal weight

The Stern Report seeks to discount $6,000 billion of annual benefits occurring 100 years from now. If these are discounted at a rate of 4%, the present discounted value of the benefits will be approximately: a. $828.2 billion. b. $455.7 billion. c. $118.8 billion. d. There is not enough information provided.

c. $118.8 billion.

At a 10% interest rate, ignoring depreciation, over a two-year period a $100,000 investment must earn at least ____ to be economically viable. a. $5,000 b. $16,000 c. $21,000 d. $32,000

c. $21,000

Suppose in a given country that the expected lifespan is 50 years. Health policy-makers increase health care spending by 10% and the lifespan rises to 51 years. The elasticity of lifespan with respect to health care spending is: a. +0.0. b. +0.1. c. +0.2. d. +1.0.

c. +0.2.

12. In problem (12), at equilibrium price and quantity, the demand elasticity is closest to: a. 0.00. b. -0.50. c. -0.80. d. -1.25.

c. -0.80. take price (-1.5) and multiply by (9/16.5)

Consider the figure above, in which Mary can produce health status or other goods with 24 hours of time. Her optimal allocation to health production is: a. 0 hours b. 8 hours c. 12 hours d. 24 hours

c. 12 hours

Assume that a machine has a useful life of 10 years, and it loses its value in a "straight line" (i.e. one-tenth of the original value per year). At a 10% interest rate, and including depreciation in the calculation, over a two-year period a $100,000 investment must earn at least approximately ____ to be economically viable. a. 20,000 b. 30,000 c. 40,000 d. 50,000

c. 40,000

In the figure above, the total benefits when quantity equals 50 are: a. 250. b. 500. c. 750. d. 1000.

c. 750

According to the table above, the total benefits for the people in society are maximized at age: a. 75 b. 80 c. 83 d. 85

c. 83

Quantity Supplied = -6 + 2.5 * Price a. If the price equals 3, quantity supplied will be 1. b. If the price equals 4, quantity supplied will be 2. c. If the price equals 6, quantity supplied will be 9. d. If the price equals 10, quantity supplied will be 15.

c. If the price equals 6, quantity supplied will be 9. 9= -6 + 2.5* (6)

Hospital E has total costs of examining and running lab tests for 200 patients of $2,000,000. Hospital F examines 200 patients for $1,250,000 and sends the results to the laboratory for $650,000. We can say that: a. Hospital E has economies of scale. b. Hospital F has economies of scale. c. It is more efficient for the health care system to use Hospital F and the lab than Hospital E. d. Hospital E has economies of scope.

c. It is more efficient for the health care system to use Hospital F and the lab than Hospital E.

In the figure above, the "welfare loss" of monopoly occurs because price __________. a. P2 is lower than the competitive price; and the quantity Q2 is higher than the competitive quantity b. P3 does not equal average cost c. P1 is higher than competitive price, and quantity Q1 is lower than competitive quantity d. P2 does not equal marginal cost

c. P1 is higher than competitive price, and quantity Q1 is lower than competitive quantity

11. Using these equations, calculate the equilibrium price and quantity. Quantity Demanded = 30 - 1.5 * Price Quantity Supplied = -6 + 2.5 * Price a. Price = 14; Quantity = 9. b. Price = 10; Quantity = 17.5. c. Price = 9; Quantity = 16.5. d. Price = 5; Quantity = 20.

c. Price = 9; Quantity = 16.5. 30-1.5p = .6+2.5p (find p by using price in the answers then use demand equation) 16.5 = 30-1.5(9)

Compare two treatments. Treatment A provides an improvement of 0.1 QALYs at a cost of $2,000, whereas Treatment B provides an improvement of 0.2 QALYs at a cost of $5,000. Which treatment will planners prefer by cost-efficiency criteria? a. Treatment A because it is cheaper. b. Treatment B because it provides a greater improvement. c. Treatment A because it has a lower cost per QALY. d. Treatment B because it has a lower cost per QALY.

c. Treatment A because it has a lower cost per QALY.

As drawn, decreases in the price of chicken lead the consumer from point B to point C to point D. At point D, compared to point B: a. consumers have increased their consumption of chicken, but decreased their consumption of beef because its price has not decreased. b. consumers have increased their consumption of chicken and beef because their tastes for beef have changed. c. consumers have increased their consumption of chicken and beef because the fall in the price of chicken has freed up income to spend on beef. d. the relative amounts of chicken and beef are unchanged.

c. consumers have increased their consumption of chicken and beef because the fall in the price of chicken has freed up income to spend on beef.

Suppose that the prices of non-health goods fall. Using the figure above with problem (18), the optimal allocation to health production: a. stays the same. b. increases. c. decreases. d. is not affected by schooling.

c. decreases

As people age, their optimal health stock ________ because _________. a. increases; people are ill more often b. increases; people are using more care c. decreases; cost of capital increases, and remaining lifespan decreases d. decreases; cost of capital decreases, and remaining lifespan increases

c. decreases; cost of capital increases, and remaining lifespan decreases

The "micro-costing" method (as noted in Figure 4.4 in the textbook): a. assigns the same level of costs to each participant. b. assigns the same level of benefits to each participant. c. directly measures the costs relevant to each participant. d. verifies market outcomes by benefit: cost criteria.

c. directly measures the costs relevant to each participant.

The disability-adjusted life-years (DALYs) framework, when used in evaluation, gives: a. higher weights to older people with greater disabilities. b. higher weights to the very young with greater disabilities. c. higher weights to those in the middle-age (most productive) cohort. d. higher weights to men than to women.

c. higher weights to those in the middle-age (most productive) cohort.

Personal computers are likely to have a _______ rate of depreciation than health capital because of __________. a. lower; improving technology makes replacements more productive. b. lower; more favorable tax treatment. c. higher; improving technology makes replacements more productive. d. higher; longer useful life.

c. higher; improving technology makes replacements more productive.

In Figure 4.5 in the textbook, a city is currently abating pollution at level Q3. To increase welfare, decision makers should: a. stay at level Q3. b. reduce efforts to Q2. c. increase efforts to Q1. d. strive to eliminate pollution by 100%.

c. increase efforts to Q1.

If the current lifespan is 80 years, policy-makers should _____ allocations to health care because _____. a. increase; marginal benefits exceed marginal costs b. decrease; they are spending enough on health c. increase; total benefits exceed total costs d. Answers (a) and (b) are correct.

c. increase; total benefits exceed total costs

2. In the table above, the combination of 700 butter and 300 guns is: a. preferable to point C. b. preferable to point D. c. infeasible given the technology. d. Answers (a) and (b) are both correct.

c. infeasible given the technology.

Depreciation represents a cost of capital because: a. accountants calculate it. b. it influences taxes. c. it uses up part of the capital good. d. it affects the interest rate.

c. it uses up part of the capital good.

Fuchs's Utah-Nevada comparison implies that _________ makes the largest difference in the production of health. a. geography b. health care c. lifestyle d. climate.

c. lifestyle

Society's well-being is maximized when the: a. marginal products of health care inputs are maximized. b. average products of health care inputs are maximized. c. marginal products equal the marginal benefits. d. marginal products of health care inputs equal 0.

c. marginal products equal the marginal benefits.

The social optimum: a. minimizes total costs. b. maximizes total benefits. c. maximizes the sums of the consumers' and producers' surpluses. d. Answers (a) and (b) are correct.

c. maximizes the sums of the consumers' and producers' surpluses.

If there are positive economic profits in a competitive industry, then: a. new firms will enter, and prices will rise. b. new firms will enter, and prices will fall. c. new firms will enter, and the prices and outputs of all firms will decrease. d. Answers (b) and (c) are correct.

c. new firms will enter, and the prices and outputs of all firms will decrease.

The best metric for evaluating health production interventions is _____ per intervention: a. total expenditures b. inputs used c. patient outcomes d. economic growth

c. patient outcomes

Suppose that the consumer is at point B. Line GE represents: a. the demand for chicken. b. the demand for beef. c. the consumer's budget constraint. d. the supply of chicken.

c. the consumers budget constraint

A person with a high discount rate values: a. money more than education. b. the future relative to the present. c. the present relative to the future. d. education relative to money.

c. the present relative to the future.

Quality Adjusted Life Years (QALYs) evaluates interventions in ____ rather than _____. a. dollars; years b. utility; dollars c. years; dollars d. dollars; utility

c. years; dollars

In Figure 4.5 in the textbook, a city is currently abating pollution at level Q2. They are debating whether to abate pollution at level Q3 or level Q1. They should choose: a. level Q3 because it is less costly than Q1. b. level Q3 because marginal benefits exceed marginal costs. c. level Q1 because it is less costly than Q2. d. 10level Q1 because well-being is maximized when marginal benefits equal marginal costs.

d. 10level Q1 because well-being is maximized when marginal benefits equal marginal costs.

Hospital cost studies have difficulty in controlling for: a. input prices. b. quality of care. c. case-mix. d. All of the above.

d. All of the above.

Which of the following conditions is necessary for allocative efficiency? a. MPL/MPK = PL/PK. b. The slope of the isoquant equals the slope of the isocost curve. c. Firms hire inputs in competitive markets and pay each input the value of its marginal product. d. All of the above.

d. All of the above.

Health can be described as a capital good because: a. we forego current consumption to improve health, which lasts into the future. b. we can increase it or let it depreciate through investment. c. we use capital goods and technology to produce it. d. Answers (a) and (b) are correct.

d. Answers (a) and (b) are correct.

Improved health increases one's well-being because one: a. has more healthy time. b. can earn more money per hour while working. c. can work less. d. Answers (a) and (b) are correct.

d. Answers (a) and (b) are correct.

In the economic model of obesity (equation 7.5), two people who eat the same amounts of junk food and health meals may gain different amounts of weight due to differences in ______. a. exercise b. basil metabolic rate c. education d. Answers (a) and (b) are correct.

d. Answers (a) and (b) are correct.

Providing increased levels of health care resources may decrease health if: a. some resources (like drugs) negate the effectiveness of others. b. consumers reduce non-health care resources (like exercise). c. consumers continue to not control their caloric intake. d. Answers (a) and (b) are correct.

d. Answers (a) and (b) are correct.

In the figure above, if 60 units of quantity is produced: a. society is not at an optimal level of outputs because marginal costs exceed marginal benefits at that level. b. society's well-being is improved because marginal benefits are still positive. c. one can draw a "loss triangle" involving the marginal benefit and marginal cost lines. d. Answers (a) and (c) are correct.

d. Answers (a) and (c) are correct.

Rational addiction models explain smoking behavior because: a. current consumption of cigarettes affects future pleasure. b. people do not make long-term decisions regarding addictive behaviors. c. smoking cigarettes can reduce health stock. d. Answers (a) and (c) are correct.

d. Answers (a) and (c) are correct.

In looking at heart outcomes, Cutler (2001) has found that: a. more intensive technologies contribute to improved outcomes. b. non-acute drugs (such as aspirin) contribute to improved outcomes. c. behavioral change (such as more health diets) contribute to improved outcomes. d. Answers (a), (b) and (c) are correct.

d. Answers (a), (b) and (c) are correct.

Dranove and Linderooth found that the gains from closing inefficient hospitals: a. fell short of the increased patient travel costs, leading to a welfare loss. b. exceeded the increased patient travel costs, leading to a welfare gain. c. suggested that there had previously been too many hospitals. d. Answers (b) and (c) are correct.