Economics of Health and Medical Care Exam Practice Tests
Course Introduction
This course explores the application of economic principles to the health care sector, examining how resources are allocated within health systems and the impact of economic incentives on the behavior of patients, providers, and payers. Topics include the demand and supply of health care services, market and government failures, health insurance, cost-effectiveness analysis, and current policy issues. Through case studies and real-world examples, students develop tools to critically analyze healthcare markets and evaluate the implications of health policy decisions on efficiency, equity, and access to care.
Recommended Textbook Health Care Economics 7th Edition by
Paul J. Feldstein
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18 Chapters
357 Verified Questions
357 Flashcards
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Page 2
Chapter 1: An Introduction to the Economics of Medical Care
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Sample Questions
Q1) Suppose you are considering becoming a physician.Your current job has an annual salary of $100,000,but you hate your job.If offered a job as a physician for $90,000 you would be indifferent between your current job and this new job.What is your opportunity cost of staying at your job?
A)-$10,000
B)$10,000
C)$100,000
D)$90,000
Answer: C
Q2) In a competitive market,firms will continue to produce until marginal cost is equal to A)Price
B)Marginal revenue
C)Both a and b
D)Neither a and b
Answer: C
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Chapter 2: The Role of Government in Health and Medical Care
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Sample Questions
Q1) Which of the following is an example of an externality in the cigarette market?
A)firsthand smoke
B)secondhand smoke
C)Increase in the price of tobacco
D)Increase in the price of a competitors' cigarettes
Answer: B
Q2) Given both the marginal external benefit and the marginal external cost,what is the net effect on society of producing at the private optimum?
Answer: The private outcome is Q = 200.The social outcome is Q = 225.Society is under-producing the optimal number of inpatient days once we take into account all the social cost and benefits.
Q3) Externalities occurred due to
A)A lack of property rights
B)A lack of government oversight
C)Poor choices made by firms
D)Poor choices made by consumers
Answer: A
Q4) Graph the Marginal Private Cost (MPC)and the Marginal Private Benefit.
Answer: 11ea48be_8914_81ef_b057_a5da371a5ee7_TB2105_00
Page 4
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Chapter 3: Health Policy and the Legislative Marketplace
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Sample Questions
Q1) Which of the following organizations would be against an expansion in health professionals by providing scholarships directly to students?
A)AMA
B)ANA
C)AHA
D)AAMC
Answer: D
Q2) If nurses can perform the same activities as a physician assistant,then these two professions
A)Are substitutes
B)Are compliments
C)Are both supported by the ANA
D)Are both supported by the AMA
Answer: A
Q3) Which of the following is an example of a regressive tax?
A)Sales tax
B)Federal income tax
C)Federal estate tax
D)Federal gift tax
Answer: A
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Chapter 4: The Production of Health: the Impact of Medical
Services on Health
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Sample Questions
Q1) Suppose you are asked to use the standard time trade-off approach to measuring the quality of life and are given the following information.An individual is faced with living the remaining 10 years of her life suffering from severe osteoporosis.She reveals that she would be willing to give up two of those years to live the remaining six in perfect health.What is the utility of one year in the chronic health state relative to perfect health?
A)2
B)8
C)0.2
D)0.8
Q2) The QALYs (quality adjusted life years)measure of health captures the idea that people may be willing to accept
A)Longer life with better health.
B)Shorter life with better health.
C)Longer life with worse health.
D)Shorter life with worse health.
Q3) Compare cost-utility analysis to cost-effective analysis.
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Chapter 5: An Overview of the Medical Care Sector
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Q1) A decrease in the demand for physical therapy will lead to
A)A decrease in the wages of physical therapists
B)A decrease in the number of physical therapist students
C)A decrease in the price for physical therapy
D)All of the above
E)None of the above
Q2) Suppose the state legislature passes a state mandate on mammography exams.Which of the following will occur?
A)The price of mammography exams will increase.
B)The wages of registered radiologic technologists will increase.
C)Both a and b.
D)Neither a nor b.
Q3) Which type of market is not present in the medical care sector?
A)Institutional
B)Management
C)Manpower
D)Educational
Q4) If the government would like to expand access to care,is it better to use a demand policy or a supply policy? Pay particular attention to the elasticity of each curve.
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Chapter 6: The Demand for Medical Care
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Sample Questions
Q1) According to Robert Fogel,the benefits of health care have
A)Exceeded cost
B)Are equal to cost
C)Not kept up with cost
D)There is no relationship between cost and benefits
Q2) Which of the following items will not increase demand for medical services today?
A)Age
B)Income
C)Education
D)Wealth
Q3) Determining the quantity of medical services based on need instead of the market can lead to
A)An over provision of medical services
B)An under provision of medical services
C)Both a and b
D)Neither a nor b
Q4) Discuss the role of "time cost" on the demand for medical services.
Q5) Discuss the role of physicians on patients' demand for medical services.
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Chapter 7: The Demand for Health Insurance
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Q1) For a risk-averse consumer
A)The expected utility of wealth is greater than the utility of expected wealth
B)The expected utility of wealth is equal to the utility of expected wealth
C)The expected utility of wealth is less than the utility of expected wealth
D)There is no relationship between the expected utility of wealth and the utility of expected wealth
Q2) Which of the following types of reimbursement would hospitals support?
A)Indemnity benefit
B)Service-benefit
C)Both a and b
D)Neither a nor b
Q3) Suppose there are two types of people in an insurance market: high and low risks.The high-risk person is sick 10% of the time and the low-risk person is sick 5% of the time.The probability of any individual being high risk is 40%.Upon getting sick,an individual loses $10,000 in medical expenses.If the insurer cannot distinguish between the two types,but the two individuals know their types,what will be the equilibrium premium?
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Chapter 8: The Supply of Medical Care: an Overview
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Q1) The marginal cost curve is upward sloping because
A)Total productivity is rising with production
B)Total productivity is falling with production
C)Marginal productivity is rising with production
D)Marginal productivity is falling with production
Q2) Suppose a hospital is interested in opening several outpatient clinics.Let n be the number of clinics.The marginal return from each clinic is R = 0.8-0.2n.If the current real interest rate is 10%,how many clinics will be opened up? If each clinic depreciates at a rate of 30%,how many clinics will be open?
Q3) The average fixed cost curve is
A)U shaped with output
B)Always increasing with output
C)Always decreasing with output
D)None of the above
Q4) Which market structure is characterized by a large number of differentiated firms?
A)Monopolistic competition
B)Monopoly
C)Oligopoly
D)Perfect competition
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Chapter 9: Market Competition in Medical Care
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Q1) Which of the following reduce price competition?
A)Hospital consolidation
B)Price regulation
C)State regulation
D)None of the above
E)All of the above
Q2) Why didn't HMOs grow in the 1960s and 1970s?
A)They were relatively inefficient versus fee for service providers
B)There existed little demand for HMO services
C)State and county medical boards denied HMO access to hospitals
D)All of the above
E)None of the above
Q3) Which of the following policies was not a cost-containment policy?
A)Increasing the Medicare payroll tax
B)Using price controls
C)Mandating the use of Certificate of Need (CON)on hospital capital
D)Decreasing physician reimbursement
E)All of the above
Q4) Explain how the lack of information to patients about plans and physicians leads to more market distortions.
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Chapter
Performance and Structure
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Sample Questions
Q1) A flat premium for all risk types will lead to
A)Adverse selection
B)Moral hazard
C)Both a and b
D)Neither a nor b
Q2) A movement of the medical loss ratio from .6 to .8 indicates an
A)Increase in administrative cost per enrollee
B)Decrease in administrative cost per enrollee
C)No difference in administrative cost per enrollee
Q3) Are high concentration ratios indicative of market power in the health insurance industry?
Q4) Assume a high-risk;person has a 0.50 probability of a $500 medical expense and a low-risk person has a 0.10 probability of a $500 medical expense.Both types of people are risk averse.What is the community rating premium for a neighborhood containing exactly half of each type of person?
A)$300
B)$250
C)$150
D)$50
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Q5) Explain why insurance companies may be hesitant to increase relative premiums.
Chapter 11: The Physician Services Market
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Sample Questions
Q1) For GPs (general practitioners)to play an effective coordinator's role (rather than a gatekeeper's)in a health care organization,they must be made financially responsible for their patients' care.Thus,they should be paid by:
A)Salary
B)A block budget based on past care expenses
C)Fee-for-service
D)Capitation
E)Per diem (or per period of stay at hospital)
Q2) Physicians who accept assignment on their Medicare patients
A)Bill patients for 80% of the allowable fee
B)Agree to forego balance billing
C)Accept the allowable fee for all services
D)Agree to charge private insurance patients the same fees as Medicare patients
E)Both b and c
Q3) On average,the training costs (both money and time)for a physician are felt to explain
A)Virtually not at all the high income of physicians
B)Partially the high income of physicians
C)Completely the high income of physicians
Q4) Explain the effects of advertising on physician services.
Page 13
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Chapter 12: The Market for Hospital Services
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Sample Questions
Q1) Robinson and Luft found that non-price competition among hospitals led to
A)Shorter hospital stays
B)More hospital services
C)More cost-containment
D)Less excess capacity
Q2) What are the advantages of using the Herfindahl-Hirschman Index versus a concentration ratio?
Q3) You are a consultant and have been employed by a large inner-city hospital called City Hospital to estimate the demand for its services.Your research indicates that the income elasticity of demand for the target market is +0.50;the price elasticity of demand is -0.15;and the cross-price elasticity of demand with respect to the price of services at Rural Hospital,a near-by hospital,is +0.35.Answer the following questions. The price of services at Rural Hospital falls by 10%.What happens to the quantity of services demanded at City Hospital?
A)Quantity demanded rises by 35.0%
B)Quantity demanded falls by 3.5%
C)Quantity demanded falls by 1.5%
D)Quantity demanded rises by 5.0%
E)Quantity demanded stays the same
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Page 14
Chapter 13: The Pharmaceutical Industry
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Sample Questions
Q1) Long lags in FDA approval lead to
A)Statistical deaths
B)Less innovation
C)Both a and b
D)Neither a nor b
Q2) Research and development (R&D)is considered a _____ because _____:
A)Variable cost;more R&D leads to more quantity produced
B)Variable cost;more R&D leads to higher profits
C)Fixed cost;it does not vary with current output
D)Fixed cost;it is related to advertising
Q3) Most pharmaceutical drug discoveries fail to lead to a marketable drug due to
A)Abandonment before reaching Phase III trials
B)Abandonment due to failure during Phase III trials
C)Abandonment for economic reasons despite success during Phase III trials
Q4) Suppose there is a new drug in the pipeline that will reduce infant mortality in half from .05 to .025,but the drug will not be approved by the FDA for 3 years.If 10,000 children are afflicted each year,what is the number of statistical deaths that could have been avoided with earlier FDA approval?
Q5) Describe methods used by brand-name pharmaceutical companies to delay the entry of generic drugs.
Page 15
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Chapter 14: Health Manpower Shortages and Surpluses:
Definitions, measurement, and Policies
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Sample Questions
Q1) Friedman and Kuznets found that physicians earn
A)32% less than dentists
B)About the same as dentists
C)32% more than dentists
Q2) Suppose the demand for labor is w = 300 - 2Q and the supply of labor is w = Q.If a price floor is set at $50,then the equilibrium
A)Wage is $100 and quantity is 100
B)Wage is $100 and quantity is 50
C)Wage is $50 and quantity is 100
D)Wage is $50 and quantity is 50
Q3) Assume the government imposes price controls on physician wages where the wage cannot exceed $120.Let the demand for labor be w = 500 - Q and the supply of labor is w = 3Q.
A)Wage is $375 and quantity is 125
B)Wage is $375 and quantity is 40
C)Wage is $120 and quantity is 380
D)Wage is $120 and quantity is 40
Q4) What are the potential pitfalls of using the ratio technique to determine shortages/surpluses?
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Chapter 15: The Market for Physician Manpower
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Q1) Which action led to a decrease in African-American physicians?
A)Flexner Report
B)Removal of antitrust protection
C)Gies Report
D)P4P
Q2) Describe how physicians can use price-discrimination to serve both high- and low-income patients.
Q3) Which action caused a barrier to entry into dentistry?
A)Flexner Report
B)Removal of antitrust protection
C)Gies Report
D)P4P
Q4) How is advertising similar to physician inducement?
A)Both activities can generate increased revenue
B)Both activities increase costs
C)Both activities provide no social value
D)Both a and b
Q5) Explain why barriers to entry,such as additional education and licensing,are preferred to malpractice lawsuits to prevent negligent or low-quality physicians from doing harm.
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Chapter 16: The Market for Medical Education: Equity and Efficiency
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Q1) If medical schools are not using tuition to ration students,what mechanism is being used to ration students and to what end?
Q2) Tuition and fees cover
A)100% of medical school cost
B)75% to 50% of medical school cost
C)50% to 25% of medical school cost
D)Less than 25% of medical school cost
Q3) A new health reform bill proposes to reduce the shortage in primary care physicians by increasing the number of medical schools.This will lead to
A)An increase in the supply curve
B)An increase in the quantity demanded for medical school
C)Both a and b
D)Neither a nor b
Q4) Currently,tuition paid by medical students constitutes
A)Less than 5% of total revenue
B)Less than 10% of total revenue
C)Less than 15% of total revenue
D)Less than 20% of total revenue
Q5) How do we determine economic efficiency in the supply of medical schools?
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Chapter 17: The Market for Registered Nurses
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Q1) The vacancy rate of nurses within hospitals was highest during
A)1958
B)1962
C)1967
D)1968
Q2) Explain how the introduction of Medicare resolved the issues of "static shortages" in nursing.
Q3) Currently,the number of registered nurses
A)Exceeds 2 million
B)Is between 2 million and 1 million
C)Is between 1 million and 500,000
D)Less than 500,000
Q4) Hospital diploma programs
A)Were used to ensure a supply of nurses
B)Have increased due to higher nurse mobility
C)Both a and b
D)Neither a nor b
Q5) What are the benefits and cost of a comparable worth-based wage determination system.
Page 19
Q6) Explain why prior to 1966,the nursing market was experiencing a static shortage.
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Chapter 18: National Health Insurance: an Approach to the
Redistribution of Medical Care
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Q1) Equal treatment for equal needs can be achieved by
A)Income dependent subsidies
B)Equal subsidies regardless of income
C)Free health care
D)None of the above
Q2) The Children's Health Insurance Plan of 1997 provides insurance for A)Infants
B)Pregnant women
C)Low-income children
D)All of the above
Q3) Hospital services are covered by
A)Medicare Part A
B)Medicare Part B
C)Medicare Part C
D)Medicare Part D
Q4) Explain how a comparative effectiveness board could reduce health care cost.
Q5) Why is deficit financing politically appealing?
Q7) What are the problems with an employer health insurance mandate? Page 20
Q6) According to Long and Stockley,what are the benefits and cost of the Massachusetts Health Plan?
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