Exam Two Prep - Economics of Health - Luba Ketsler - UTD

The Nyman Model claims that health insurance is what kind of transfer compared to the conventional model?

health insurance is a form of income transfer under the Nyman model and not a form of risk transfer

What is the market structure with small individual market shares, no barrier to entry, slightly imperfect consumer knowledge. not usually Healthcare

competitive market

what are the 3 kinds of oligopolies?

competitive, overt collusion, tacit collusion

which model for moral hazard states that people are more risky when they obtain insurance and will abuse their insurance rights by using more healthcare?

conventional model

demand side is about benefit and supply side is about

cost

what is tacit collusion

people colluding about prices in secret

what is overt collusion

people meeting publicly to negotiate prices

examples of a negative supply externality

pollution

The only "carrot" that really exists in externalities exists in a

positive supply externality

Examples of negative demand side externalities

smoking, drinking

Households contribuate to demand side externalities and firms contribute to _______.

supply side externalities

nickel and dime

the act of making small incremental changes so that it results are not noticeable until it's really big, to support a goal.think about slowing adding nickels to a piggy bank and it becomes a dollar without you realizing

A more elastic fringe supply puts downward pressure on

the market price set by the dominant firm

Residual demand

the remaining market share leftover for ACME after the fringe firms take their share

In a positive demand side externality, MSB reflects the MPB plus

all external benefits

williamson's merger trade off graph features

-represents the market for hospital services supposing a constant cost industry. -The initial equilibrium output is Q0 and price is P0.-when two large firms merge horizontally, the output falls to Q1 and price rises to P1. The merger also results in cost savings as average costs falls to AC1

key points to know about the williamson's merger trade off

-It brings the average cost down, making it cheaper but it also decreases quantity (in terms of administrative materials) -it is also able to increase overall price model-more specialists, more technology as a result -the merger can be good or bad.

What is an externality?

A market transaction affecting parties other than the buyers and sellers

Medicaid

A federal and state *assistance program* that helps with healthcare costs for some people with limited income and resources.

Medicare

A national health *insurance program* for eldery people and people with disabilities in the United States, begun in 1965 under the Social Security Administration and now administered by the Centers for Medicare and Medicaid Services.

Medicare Part A

Provides inpatient/hospital coverage.

Medicare Part B

Provides outpatient/medical coverage.

Medicare Part D

Provides prescription drug coverage

The Dominant Insurer Pricing Model has 6 main aspects and/or assumptions. The first is that only one dominant firm exists in the industry. This should hopefully make sense. What are the other 5 aspects or assumptions?

Dominant firm assumed to be a low-cost producer A fixed number of firms constitute the competitive fringe Each firm can be treated as being a price taker Dominant firm assumed to know industry demand and how much the competitive fringe firms will collectively supply at various prices All firms produce a homogeneous product, which sells at an identical price

People purchase insurance when

Expected utility gain from receiving the income transfer when sick > Expected utility loss of paying the premium when healthy

public interest theory

Government intervenes to promote equity and efficiency example: welfare, foodstamps, medicaid

what was the example used for a monopoly in class?

Humera

a positive supply side externality is when

MSB exceeds MSC

Both insurance models use this term in different ways when describing people's behavior when they have insurance?

Moral Hazard

Which model for moral hazard states that people are likely to use healthcare more but it is worth it becuase people generally won't be frivolous and health may improves?

Nyman Model

Medicare Part C

Offers an alternate way to receive your Medicare benefits. (Also called Medicare Advantage)

Crowding Out

When families or individuals who would have retained their employer-sponsored coverage in the absence of a new program drop it as a direct result of the extension of government subsidized coverage premiums will go up for the people who still have private insurance. This can cause the "crowding out" of private insurance.

What is the condition to be met for an externality of any kind?

When social benefit does not equal social cost

price taker

a buyer or seller that is unable to affect the market price

what was the example for a monopolistic competition used in class?

coffee houses, because that have similar but articular products. in healthcare, freestanding ERs.

Define supplier induced demand

demand that is artificially created by suppliers

what is a factor of a competitive oligopoly

each firm has incentive to lower price to marginal price

What are these examples of? follow up doctor appointments that aren't needed, car tuneups even when nothing is wrong, offering c-sections when not needed, etc

examples of supplier induced demand

a negative suppy externality is when MSC

exceeds MSB

A positive demand side externality is when marginal social benefit

exceeds marginal private benefit

Buyers and sellers do not fully internalize all the costs and benefits of the transaction because of

externalities

what types of moral hazard exist under the nyman model

inefficient and efficient moral hazard

the conventional model states that only

inefficient moral hazard exists.

what is an example of oligopoly in Healthcare?

insurance companies

Williamson Trade-off

is a theoretical model in the economics of industrial organization which emphasizes the trade-off associated with horizontal mergers between gains resulting from lower costs of production and the losses in quantity associated with higher prices due to greater degree of monopoly power.

What happens to the demand curve when you tax cigarettes

it shifts left

special interest theory

lobby organizations promote interests through money and influence their congress. Isn't always bad, can be helpful for the economy but can also be harmful.

the more fringe firms, the higher or lower the cost?

lower, because more competition

monopsony

market structure where there a single buyer substantially controls the market as the major purchaser of goods and services offered

When marginal private benefit exceeds marginal social benefit

negative demand side externality

which market structure is most prevalent in healthcare?

olgopoly

few, dominant sellers, large market share, homogenous or not, perfect or incomplete consumer knowledge

oligopoly

What does the market structure look like for a pure monopoly?

one seller with complete market share, homogeneous product, complete barrier to entry, perfect or imperfect buyer information

Examples of carrots with a positive supply externality

scholarships, grants, patents, copyright

true or false: in an oligopoly, there is a dominant firm that sets prices and tries to weed out fringe firms?

true

Every time you pay your monthly premium for your insurance your _____ goes down.

utility

examples of positive demand side externalities

vaccine mandates, healthcare mandates