HCM 402 Midterm

Contrast fee-for-service health care and a health maintain organization.

Under fee-for-service healthcare, medical care providers are paid according to the services they provide. Health maintenance organizations provide health care and is paid a fixed amount per person enrolled in the plan, regardless of how many services are provided.

Macroeconomics primarily examines:

broad issues such as national output, employment and inflation.

The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.

budget constraint

In a market-oriented economy, the amount of a good that is produced is primarily decided by the interaction of:

buyers and sellers

When demand is inelastic:

consumers are not very responsive to changes in price.

A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that:

cross-price elasticity of demand for soda is -3.

Supply is said to be ________________ when the quantity supplied is very responsive to changes in price.

elastic

Youth smoking seems to be more _____________ than adult smoking—that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.

elastic

If the supply curve for a product is vertical, then the elasticity of supply is:

equal to zero

If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to:

fall in the equilibrium quantity stay the same

An income elasticity of 0.45 for all medical products implies that consumption will be higher among low-income groups than among high-income groups

false

Cost cutting cannot increase profits

false

Forecasts need not consider the plans of competitors

false

Marginal revenue cannot be negative

false

Price discrimination is uncommon in healthcare

false

The two main tools of macroeconomic policy include monetary policy, and fiscal policy, which involves __________ spending.

government

With regard to the provision of health insurance in the United States, which of the following is regarded as a way of addressing moral hazard and adverse selection problems?

greater government involvement

Which of the following would reduce the supply of microcomputers?

higher wage rates for the workers that assemble the computers

A perfectly elastic supply curve is:

horizontal

What are five things that will shift a supply curve to the right?

- A change in technology - a decrease in the price of a substitute in production - an expected decrease in future price - deregulation - weather

Various factors cause a demand curve to shift. List 4 different factors.

- Changes in income, - changes in population - changes in taste - changes in expectations of future prices

The price elasticity of demand for physicians' services is -0.20. Your group controls 10 percent of the market. What price elasticity does your firm face?

-2.00

The economics approach portrays people as self-interested. Instead, the critics argue that people should be taught to care more deeply about others. Offer 2 economists responses with explanation.

1. Even people with focus on their own life, they still have a part set aside for their own self-interest. 2. Self-interested behavior and profit-seeking can be labeled with other names, such as personal choice and freedom. 3. self-interested behavior can lead to positive social results. For example, when people work hard to make a living, they create economic output. 4. even people who focus on their own self-interest in the economic part of their life often set aside their own narrow self-interest in other parts of life

How can a group of workers, each specializing in certain tasks, produce so much more than the same number of workers who try to produce the entire good or service by themselves? Adam Smith offered three reasons. List them and briefly describe the rationale behind each.

1. Specialization in small jobs allows workers to focus on the types of production where they have an advantage. People have different skills and talents; therefor be better at certain jobs than others. 2. Those who specialize in certain jobs begin to get really good at it which allows them to produce more. 3. Specialization allows for economic growth as a whole.

The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal:

5 units

Briefly explain "thin market" and "thick market". Include a brief description of how a "thin market" comes about.

A "thin market" is referred to as one with few buyers and few sellers and a "thick market" is one with many buyers and many sellers. When buyers and sellers become discouraged that is when a market can become thin.

What is the difference between a change in demand and a change in quantity demanded?

A change in quantity demanded is caused by a change in the price of the product and is represented as a movement along a stationary demand curve. A change in demand is caused by a change in tastes, income, price of a related good, number of consumers or expectations and is illustrated as a horizontal shift of the entire demand curve.

Contrast a money-back guarantee and a warranty.

A money-back guarantee is a promise given by a manufacturer that states the buyer's money will be refunded under certain conditions, like if the product doesn't work or sometimes even if the buyer decides to return the product. A warranty is promise given by a manufacturer to fix or replace a good, at least for a certain period of time.

Which of the following will not result in a leftward shift of the market demand curve for labor?

AN INCREASE IN THE WAGE RATE

It is important to distinguish between average and incremental cost

All of the above

Wheat and oats are both used to make cereal and both are grown on the prairies. What would happen to the supply and demand of oats if the price of wheat were to rise?

An increase in the price of wheat would reduce the quantity demanded of wheat, and decrease the quantity supplied of wheat. Since oats are substitute for wheat, so the increase in the price of wheat reduces the supply of oats.

Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect:

Andy's demand for beer to increase

Why is there scarcity?

Because our unlimited wants exceed our limited resources

Markets tend toward equilibrium and, as a result, will tend to eliminate shortages and surpluses. Why?

Because when a shortage exists, consumers, who are unhappy about not being able to purchase the products or services they want, will tend to bid the prices higher, moving the market towards equilibrium. if a surplus exists, suppliers are unhappy about not being able to sell the quantity of goods or services they wish, and will tend to lower prices in order to persuade consumers to purchase more goods and services.

Rational decision making involves

Choosing the option that best helps your realize your goals, given your resources

Define consumer surplus and producer surplus.

Consumer surplus is the gap between the price that consumers are willing to pay, and the market equilibrium price. Producer surplus is the gap between the price for which producers are willing to sell a product, and the market equilibrium price.

The formal study of economics began when Adam Smith published his famous book. In the first chapter of The Wealth of Nations, he introduces the idea of division of labor. Define "division of labor" and give an example.

Division of labor is the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers. For example, Smith used the example of how the tasks of making a pin were divided in a pin factory. He counted the multiple tasks involved with making a pin, including the steps involved in drawing out a piece of wire, cutting it to the right length, straightening it, putting a head on one end and a point on the other, and packaging pins for sale. In observing pin factories, Smith counted 18 distinct tasks that were often done by different people.

_____________ - a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines.

Economies of scale

Briefly describe the legal consequences of acting as a cosigner of a loan.

If an individual acts a a cosigner of a loan that individual is legally bound by that pledge to repay some or all of the money if the original borrower does not do so.

Identify and briefly explain three methods that insurance companies use to off-set the moral hazard associated with their industry.

Insurance companies use the following methods to off-set the moral hazard that arises when people have insurance against a certain event, they are less likely to guard against that event occurring: 1) they require insurance policyholders to pay an set amount called a "deductible" out of their own pocket before the insurance coverage pays anything. 2) they require insurance policyholders to pay a small amount for each service, called a "copayment", before insurance covers the rest. 3) they use a form of coinsurance that requires insurance policyholders to pay a percentage of a loss, and the insurance company pays the remaining cost.

Because of their relatively small national economies, which of the following is most likely considered to be the most important factor for Belgium, Korea, and Canada to take full advantage of specialization?

International trade

Define cross-price elasticity of demand and discuss within the context of complementary goods and substitute goods.

It refers to the idea that the price of one good is affecting the quantity demanded of a different good. It is the percentage change in the quantity of good A that is demanded as a result of a percentage change in the price of good B.

Which of the following statements is true about employer-paid health insurance?

Most privately insured Americans get coverage through an employer

When most people want to know the cost of an item or a service, they look for a price tag. When economists want to determine cost, they go one step further. They use the idea of opportunity cost. Explain the concept of opportunity cost and illustrate with an example.

Opportunity cost is whatever must be given up to obtain something that is desired. An example is when you give up going to see a movie to study for a test in order to get a good grade. The opportunity cost is the cost of the movie and the enjoyment of seeing it.

Explain the concept of opportunity cost and give an example.

Opportunity costs is the next best thing. It is whatever must be given up to obtain something that is desired. For example, A player attends baseball training to be a better player instead of taking a vacation. The opportunity cost was the vacation

Which of the following statements is true?

Probability estimates are usually based on solid evidence

As the text suggests, the demand and supply model predicts that the new computer and communications technologies will raise the pay of high-skill labor but reduce the pay of low-skill labor. Explain how this works using the four-step process.

Step 1: What did the market look like before the change? In this case there are two markets: low-skill labor and high-skill labor. In each market, the original demand curve for labor is D0, the original supply curve for labor is S0, and the original equilibrium is E0, where the equilibrium wage is w0 and the equilibrium quantity is q0. Step 2: Does the new technology affect the supply of labor or the demand for labor? The new technology affects demand for labor. Step 3: How will the new technology alter demand for the two types of labor? As the technology substitute for low-skill labor becomes cheaper, demand for low-skill labor will shift to the left, as shown by the shift from D0 to D1 in the market for low-skill labor. As the technology complement for high-skill labor becomes cheaper, demand for high-skill labor will shift to the right, as shown by the shift from D0 to D1 in the market for high-skilled labor. Step 4: Compare the new equilibrium to the original equilibrium. The new equilibrium for low-skill labor at E1 has a lower wage and quantity than the original equilibrium E0 in the market for low-skill labor. The new equilibrium for high-skilled labor at E1 has a higher wage and quantity than the original equilibrium.

Define the term "sunk costs" and give an example.

Sunk costs are costs that occurred in the past and can not be recovered under any circumstances. Example when Casey bought a movie ticket for $8 and after watching it for 30 minutes she knows that the movie is not as good as she thought. The money that she spent is sunk cost because even though she doesnt like it but she has already paid for the ticket and it cannot be returned. But staying in the movie still means that she is paying for the opportunity cost in time. The lesson of sunk cost is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of the future options.

The demand and supply model can explain the existing levels of prices, wages, and rates on return. Demand and supply can also be used to explain how economic events will cause changes in prices, wages, and rates on return. There are only 4 possibilities: what are they?

The economic event may cause the demand curve to shift right or to shift left, or it may cause the supply curve to shift to the right or to the left.

What are the normal goods and inferior goods? Discuss within the context of income elasticity of demand.

The normal goods are the ones that the income elasticity of demand is positive that is a rise in income will cause an increase in the quantity demanded. On the other hand, an increase in income means that one might purchase less of the good, which would be considered inferior goods. For example: a person with a higher income might buy less cheap wine and more imported beer. When the income elasticity of demand is negative, the good is called an inferior good.

Briefly explain the purpose of a lender requiring a pledge of collateral from a borrower in exchange for a loan.

The purpose is to provide the lender with something valuable that already belongs to the borrower, often property or equipment, which that lender would have a right to seize and sell if the loan is not repaid.

Briefly explain the purpose of a lender requiring a pledge of collateral from a borrower in exchange for a loan. View keyboard shortcuts

The purpose of having a lender require a borrower to pledge collateral in exchange for a loan is to provide the lender with something valuable that already belongs to the borrower, often property or equipment, which that lender would have a right to seize and sell if the loan is not repaid.

Identify and briefly describe 2 examples of government run insurance programs.

Unemployment Insurance: every worker has a small percentage taking out of their paycheck for unemployment insurance. Workers Comp: employers are required to pay a small percentage of the salaries that they pay into funds, that are used to compensate workers who suffer an injury on the job.

Define zero elasticity and describe the resultant demand curve.

Zero elasticity is the highly inelastic case in which a percentage change in price, no matter how large, results in zero change in quantity. It refers to curves that are vertical.

A change in price of a good or service typically causes__________ for that specific good or service.

a change along the supply curve

What are 5 things that will shift a supply curve to the right?

a decrease in the price of a substitute in production, a change in technology, an expected decrease in future price, deregulation, and weather.

Which of the following lies primarily within the realm of macroeconomics?

a study of how tax cuts stimulate aggregate production

A factor that might influence a sales forecast would be

all of the above

Which of the following is a scarce resource?

all of the above

Which of the following statements is an example of normative economics?

all of the above

Which of the following will not result in a rightward shift of the market supply curve for labor?

an increase in labor productivity

As a person receives more of a good, the _______________ from each additional unit of the good declines.

marginal utility

When the level of insurance premiums that someone pays is equal to the amount that an average person in that risk group would collect in insurance payments, the level of insurance

reaches actuarial fairness.

Why has there been a shift away from the traditional fee-for-service structure in the U.S. health care?

reduces incentives and moral hazards of added services to increase income

Why would a bank require a borrower to have collateral or a cosigner before agreeing to lend funds?

reduces risk associated with imperfect information

The main idea of demand is that

sales increase at lower prices

Compared to Canada, France, Germany, and the United Kingdom, The United States had

the highest spending per person and the shortest life expectancy in 2011.

Whenever there is a shortage at a particular price, the quantity sold at that price will equal:

the quantity supplied at that price.

According to the law of supply:

there is a direct relationship between price and the quantity supplied.

A drop in price might reflect an expansion of supply or a contraction in demand.

true

Forecasts combine history and judgement

true

Most of the time, opportunity cost of an input will be what you pay for it

true

Sales forecast are applications of demand theory

true

The term "inelastic" is most commonly applied to price elasticities

true

If macroeconomics looks at the economy as a whole, it focuses on which of the following?

unemployed people

Demand is said to be ________________ when the quantity demanded changes at the same proportion as the price.

unit elastic

A perfectly inelastic supply curve is:

vertical