Economics of Health and Medical Care
Question Bank
Course Introduction
This course explores the unique characteristics and complexities of health care markets by applying core principles of microeconomics and health economics. It covers topics including the demand for health and medical care, insurance markets, and provider behavior, as well as the roles of government intervention, regulation, and public policy. Students will examine the factors influencing health care costs, access, and quality, analyze global health systems, and discuss contemporary issues such as health care reform and inequality. By the end of the course, students will have a solid understanding of how economic theories and tools are used to address challenges in the health care sector and inform decision-making by consumers, providers, and policymakers.
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 the government institutes new regulations on physicians requiring physicians to take additional years of training before practicing medicine.What will happen to the wages and quantity of physicians?
A)Wages decrease;number of physicians increases
B)Wages increase;number of physicians increases
C)Wages decrease;number of physicians decreases
D)Wages increase;number of physicians decreases
Answer: D
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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3
Chapter 2: The Role of Government in Health and Medical Care
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Sample Questions
Q1) The demand curve for flu shots is P = 100 - 2Q,and the supply curve for flu shots is P = 19 + Q where Q is a million shots per year and P is the dollars per shot.Assume that the flu shots generate an additional benefit in that it reduces the likelihood of others getting sick.This benefit is valued at $6 per shot per year.The private market equilibrium quantity of shots produced is ____________________________,but the socially optimal amount of shots is ________________________________.
A)27 million shots;25 million shots.
B)27 million shots;24 million shots.
C)27 million shots;29 million shots.
D)25 million shots;29 million shots.
Answer: C
Q2) Which of the following are reasons for the government to intervene in the medical market?
A)Provide consumer protection
B)Internalize externalities
C)Correct market failure (i.e.,barriers to entry)
D)All of the above
Answer: D
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Chapter 3: Health Policy and the Legislative Marketplace
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Q1) Explain the role of "interest" and "cost" when politicians are considering their position on a specific bill.How does their position change if interests are concentrated or diffused? How does this change if costs are concentrated or diffused?
Answer: When costs are concentrated and interestes are concentrated,there is typically a battle between two lobbying groups for the support of the politician.The stronger political group will convince the politician.When interests are concentrated,but costs are diffused,then the politician will support the special interest of the group and simply pass the cost onto the taxpayer.When the interests are widespread,but the costs are concentrated,the bill will be quickly defeated as the political group representing those who would have to pay the bill would convince the politician to vote the bill down.If both the costs and the interests are diffused,then a public interest view of the bill will lead to greater efficiency.
Q2) 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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Page 5
Chapter 4: The Production of Health: the Impact of Medical
Services on Health
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Sample
Questions
Q1) Between 1968 and 1976,medical intervention accounted for
A)More than 60% of the decline in ischemic heart disease mortality
B)Between 40 and 60% of the decline in ischemic heart disease mortality
C)Less than 40% of the decline in ischemic heart disease mortality
Q2) 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
Q3) 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.
Page 6
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Chapter 5: An Overview of the Medical Care Sector
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Q1) If the supply function in the medical sector is relatively elastic,then a rightward shift in demand will cause
A)Price to increase faster than quantity increases
B)Price to decrease faster than quantity increases
C)Price to increase slower than quantity increases
D)Price to decrease slower than quantity increases
Q2) If nurses and physicians are substitutes in the hospital production function,then an increase in the tuition to nursing school will
A)Increase the quantity demanded for both nurses and physicians.
B)Decrease the quantity demanded for both nurses and physicians.
C)Increase the quantity demanded for nurses,but decrease the demand for physicians.
D)Decrease the quantity demanded for nurses,but increase the demand for physicians.
Q3) Currently,the federal government subsidizes medical education in the form of reimbursement for direct medical education (DME)and indirect medical education (IME)expenditures.These expenditures are reimbursed via Medicaid and Medicare.How would the three markets react to an elimination of this federal subsidy?
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Chapter 6: The Demand for Medical Care
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Q1) Discuss the role of physicians on patients' demand for medical services.
Q2) As co-insurance rates increase,patients become
A)More sensitive to changes in price,which leads to over-consumption
B)Less sensitive to changes in price,which leads to over-consumption
C)More sensitive to changes in price,which leads to under-consumption
D)Less sensitive to changes in price,which leads to under-consumption
Q3) Which of the following variables should be included in an analysis of consumer demand?
A)age of patient
B)education of patient
C)income of patient
D)All of the above
Q4) After the introduction of Medicare and Medicaid,the increase in medical expenditures can be explained by a
A)Less than 25% increase in prices
B)25% to 50% increase in prices
C)50% to 75% increase in prices
D)Greater than 75% increase in prices
Q5) Discuss the role of "time cost" on the demand for medical services.
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Chapter 7: The Demand for Health Insurance
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Q1) 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
Q2) When an insurer promises to pay 30% of treatment costs,this amount is known as a
A)Deductible
B)Co-insurance
C)Stop-loss
D)Lifetime maximum
Q3) Calculate the expected return (or expected winnings)in a game where a person wins $1 with the probability of 1/3 ,$5 with the probability of1/6 ,and $0 with the probability of 1/2 .
A)0
B)$1 1 / 6
C)$2 1 / 6
D)$3
Q4) Suppose the inverse demand for physician office visits is P = 1000 - 20Q.Now suppose an insurance policy provides a co-insurance rate of 50%.Graph the new demand function with health insurance.
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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) Oligopoly is described as
A)Few identical firms and intense price competition
B)Many differentiated firms and soft price competition
C)Many differentiated firms and intense price competition
D)Few identical firms and soft price competition
Q4) Assume that the marginal productivity of an RN is 10 patients and the marginal productivity of an LPN is 2.5 patients.The wage of an LPN is $20 per hour.Find the equilibrium wage for RNs.
Q5) If a hospital displays decreasing average costs on output,should the hospital be regulated even though it is more efficient?
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Chapter 9: Market Competition in Medical Care
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Sample Questions
Q1) The increased supply of physicians was most aided by
A)The increased use of health insurance
B)The Health Professions Educational Assistance Act (HPEA)
C)The immigration of foreign medical graduates
D)The rise in physician incomes
Q2) Explain how the lack of information to patients about plans and physicians leads to more market distortions.
Q3) The failure of capitation payments is due to
A)Providers' inability to access risk
B)Providers' inability;risk-adjustment claims to insurers
C)Conflict with respect to the method;specialists of payment between primary care physicians and specialist.
D)All of the above
E)None of the above
Q4) __________ place the incentive to reduce cost on the __________
A)PPO;provider
B)POS;provider
C)FFS;provider
D)PPO;consumer
Q5) Describe the advantages and disadvantages of capitation payments.
Page 11
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Chapter 10: The Market for Health Insurance: Its
Performance and Structure
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Sample Questions
Q1) 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
Q2) Explain why insurance companies may be hesitant to increase relative premiums.
Q3) Are high concentration ratios indicative of market power in the health insurance industry?
Q4) A risk-averse consumer faces a 0.60 probability of health expenditures equal to $10,000 and zero expenditures otherwise.She can purchase a health insurance policy that will cover all her actual health costs for $6,000.It follows that
A)She will definitely not buy the health insurance policy
B)She will possibly buy the health insurance policy
C)She will definitely buy the health insurance policy
Q5) Do high concentration ratios have an effect on input prices?
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Chapter 11: The Physician Services Market
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Q1) Define defensive medicine and describe what Baicker,Fisher,and Chandra found as the cost of defensive medicine.
Q2) What are the reasons why both the size of medical groups and their numbers have Explain.
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) Which of the following will not change the demand for office visits to the physician?
A)Unusually cold and damp weather during the winter
B)A change in the price of an office visit
C)Layoffs at the local plant causing a decrease in the number of people with health insurance in the community
D)Television advertising by drug manufacturers to promote a new over-the-counter influenza treatment
E)They all change the demand for office visits
Q5) How did physicians accepting Medicare assignments cause price discrimination?
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Chapter 12: The Market for Hospital Services
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Q1) Which of the following is a strategy used by a firm in monopolistic competition?
A)Advertising
B)Lobbying
C)Improving hospital amenities
D)All of the above
Q2) 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 City Hospital falls by 10%.What happens to the quantity of services demanded by Rural Hospital?
A)Quantity demanded at City Hospital increases by 15.0%
B)Quantity demanded at City Hospital increases by 1.5%
C)Quantity demanded at Rural Hospital rises by 3.5%
D)Quantity demanded at Rural Hospital falls by 5.0%
E)Quantity demanded at City Hospital rises by 5.0%
Q3) What are the advantages of using the Herfindahl-Hirschman Index versus a concentration ratio?
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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) 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?
Q3) Drug after formularies
A)Help manufacturers determine which drugs are efficacious
B)Help salesmen determine what to sell
C)Determine which drugs will be covered by third-party payers
D)Both b and c
Q4) When generic versions enter the market after the patent on a branded drug has expired
A)The branded drug increases market share and price
B)The branded drug increases market share and decreases price
C)The branded drug decreases market share and increases price
D)The branded drug decreases market share and decreases price
Page 15
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Sample Questions
Q1) Which of the following is a normative statement?
A)Nonprofit hospitals are inefficient
B)Physicians should be more cost conscious
C)Government-sponsored health insurance will provide lower premiums
D)All of the above
Q2) Which of the following is true?
A)Dynamic shortages are resolved over time
B)Static shortages are resolved overtime
C)Both a and b
D)Neither a nor b
Q3) Which of the following will occur if labor demand and supply simultaneously increase?
A)An increase in equilibrium wages and ambiguous change in the equilibrium quantity of labor
B)An ambiguous change in equilibrium wages and equilibrium quantity of labor
C)An ambiguous change in equilibrium wages and an increase in the equilibrium quantity of labor
D)A decrease in equilibrium wages and an increase in the equilibrium quantity of labor
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Chapter 15: The Market for Physician Manpower
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Q1) Describe how physicians can use price-discrimination to serve both high- and low-income patients.
Q2) 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
Q3) Which action caused a barrier to entry into dentistry?
A)Flexner Report
B)Removal of antitrust protection
C)Gies Report
D)P4P
Q4) Which of the following is not a barrier to entry into the physician profession?
A)High membership fees into medical societies
B)Medical school accreditation
C)Longer residency programs
D)State Licensing
Q5) Describe how barriers to entry would decrease the quality of care.
Q6) Explain how barriers to entry can cause static shortages of health professionals.
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Chapter 16: The Market for Medical Education: Equity and Efficiency
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Q1) What are some of the concerns associated with medical school tuition that reflect the true cost of a medical education?
Q2) Income Contingent Loan Repayment Plans (ICLRP)have been proposed to encourage medical school graduates to
A)Locate to a rural area
B)Work with underserved populations
C)Locate to an urban area
D)None of the above
Q3) 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
Q4) Currently,there is an
A)Excess supply of medical schools as indicated by the low price
B)Excess demand for medical education as indicated by the excess number of applications to medical school
C)Both a and b
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Chapter 17: The Market for Registered Nurses
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Q1) An increase in the mandated nurse-hospital ratio will lead to A)Better patient outcomes
B)Higher nurses' wages
C)Both a and b
D)Neither a nor b
Q2) Immigrants constitute ______ of the growth in nurses between 2001 to 2008.
A)1/10
B)1/5
C)1/3
D)1/2
Q3) Explain how allowing nurses to unionize can guard against hospitals keeping wages artificially low.
Q4) According to Buerhaus,et.al,there will be nurse shortage in the near future due to A)Improve economic conditions
B)An aging of the nursing stock
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.
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Chapter 18: National Health Insurance: an Approach to the
Redistribution of Medical Care
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Q1) What are the benefits and costs of an individual health insurance mandate.
Q2) Medicaid is financed using a
A)Progressive tax
B)Regressive tax
C)Flat tax
D)None 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) 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
Q5) Infant mortality is higher in Canada than in the United States
A)True
B)False
Q6) What are the problems with an employer health insurance mandate? Page 20
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