Health Economics Exam Solutions
Course Introduction
Health Economics explores the allocation of resources within the health care sector, examining how economic theories and principles can improve decision-making and efficiency in health care delivery. The course covers topics such as demand and supply of health care services, health insurance markets, the role of government in health care, market failures, cost-benefit and cost-effectiveness analysis, and the economic evaluation of health interventions. Students will gain insights into the unique characteristics of health markets, analyze contemporary health policy issues, and evaluate strategies for achieving equitable and sustainable health outcomes.
Recommended Textbook Microeconomics 7th Edition by Jeffrey M. Perloff
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20 Chapters
2248 Verified Questions
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) The purpose of making assumptions in an economic model is to
A) force the model to yield the correct answer.
B) minimize the amount of work an economist must do.
C) simplify the model while keeping important details.
D) express the relationship mathematically.
Answer: C
Q2) In the Soviet Union,which boasted about giving every worker a job,some workers were given the task of digging holes and filling them again.What function of microeconomic analysis did this policy address?
A) What goods/services to produce
B) How to produce the goods and services
C) Who gets the goods and services
D) A and B
Answer: D
Q3) Normative analysis offers decision makers the most valuable information when choosing among alternatives.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Supply and Demand
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Sample Questions
Q1) Assume Joe is only willing to pay $5 for a Ferrari sports car.
A) Joe is not considered part of the demand for Ferraris.
B) Joe most likely will not be sold a Ferrari.
C) Joe is not considered rational.
D) Joe's willingness to pay is not indicative of how much he values the Ferrari.
Answer: B
Q2) Once an equilibrium is achieved,it can persist indefinitely because
A) shocks that shift the demand curve or the supply curve cannot occur.
B) shocks to the demand curve are always exactly offset by shocks to the supply curve.
C) the government never intervenes in markets at equilibrium.
D) in the absence of supply/demand shocks no one applies pressure to change the price.
Answer: D
Q3) If a large number of people decide to major in economics,the supply and demand model has little to say about the future wages of economists.
A)True
B)False
Answer: False
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Chapter 3: Applying the Supply and Demand Model
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Sample Questions
Q1) In the mid-1980s,the salaries of accounting professors with Ph.D.s increased dramatically.This resulted in an increase in enrollments in Ph.D.accounting programs.Since a Ph.D.degree in accounting may take at least four years to complete,the short-run elasticity of supply of accounting professors is A) greater than the long-run-elasticity of supply.
B) less than the long-run elasticity of supply.
C) equal to the long-run elasticity of supply.
D) equal to the short-run elasticity of demand.
Answer: B
Q2) In the case of a specific tax,tax incidence is independent of who pays
A) only when supply and demand elasticities are not constant.
B) only when the tax is collected from consumers.
C) in most but not all cases.
D) in all cases.
Answer: D
Q3) For all goods,the long run demand curve is always more elastic than the short run demand curve.
A)True
B)False
Answer: False
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Chapter 4: Consumer Choice
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Sample Questions
Q1) In behavioral economics,salience is best exemplified by
A) consumers responding differently when posted prices increase rather than when prices increase because of sales tax increases.
B) consumers responding the same regardless of how prices change.
C) the end of a controlled experiment.
D) consumers responding differently when income increases permanently rather than temporarily.
Q2) An interior solution to a consumer's utility maximization problem implies
A) consuming a positive amount of all goods.
B) consuming negative amounts of all goods.
C) consuming less than optimal amounts of all goods.
D) consuming more than an optimal amount of at least one good.
Q3) Max has allocated $100 toward meats for his barbecue.His budget line and indifference map are shown in the above figure.If the price of burger increases,which of the following bundles are in Max's opportunity set?
A) b, d, e
B) d, e
C) a, b, c, d, e
D) None of the labeled points are in Max's opportunity set.
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Page 6
Chapter 5: Applying Consumer Theory
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Sample Questions
Q1) Suppose that the interest rate paid to savers increases.As a result,Tom wishes to save more.This suggests that,for Tom,
A) the substitution effect is greater than the income effect.
B) the income effect is greater than the substitution effect.
C) utility maximization is not occurring.
D) future consumption is a luxury.
Q2) As the price of a good rises,the consumer will experience
A) a desire to consume a different bundle.
B) a decrease in utility.
C) a southern or western movement on the indifference map.
D) All of the above.
Q3) If consumer income and prices increase by the same percentage,
A) the consumer will buy more of both goods.
B) the consumer will buy more of both goods if they are both normal goods.
C) the consumer will buy less of both goods if they are both inferior goods.
D) the consumer's utility maximizing bundle stays the same.
Q4) An increase in unearned income always creates a disincentive to work.
A)True
B)False
Q5) Why can't all goods be inferior?
Page 7
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Chapter 6: Firms and Production
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Sample Questions
Q1) Total Product is
A) the change in total product resulting from an extra unit of labor, holding other factors constant.
B) the ratio of output to the number of workers used to produce that output.
C) the amount of output that can be produced by a given amount of labor.
D) equal to the marginal product of labor when the average product is increasing.
Q2) With capital on the vertical axis and labor on the horizontal axis,vertical isoquants imply that
A) capital and labor are perfect substitutes.
B) capital and labor must be used together in a certain proportion.
C) capital is not productive.
D) labor is not productive.
Q3) If marginal productivity is decreasing as more labor is hired,then average productivity must be decreasing as well.
A)True
B)False
Q4) Changing how production is organized cannot result in changes in productivity.
A)True
B)False
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Chapter 7: Costs
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Sample Questions
Q1) Assume baseball player salaries are fully determined before the season starts.From the point of view of the baseball team owner,player salaries during the course of the season are then
A) variable costs.
B) marginal costs.
C) fixed costs.
D) average costs.
Q2) Economies of scale and Increasing Returns to Scale are the same thing looked at from either the production or cost perspective.
A)True
B)False
Q3) If increasing returns to scale are present,the long-run average cost increases as more output is produced.
A)True
B)False
Q4) The marginal cost curve intersects the average fixed cost curve at its minimum.
A)True
B)False
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Chapter 8: Competitive Firms and Markets
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Sample Questions
Q1) The demand curve that an individual competitive firm faces is known as its A) excess demand curve.
B) market demand curve.
C) residual demand curve.
D) leftover demand curve.
Q2) In the long run,profits will equal zero in a competitive market because of A) constant returns to scale.
B) identical products being produced by all firms.
C) the availability of information.
D) free entry and exit.
Q3) Suppose that once a well is dug,water flows out of it continuously without any additional effort.Customers collect their water and pay a per gallon fee when they leave the site of the well.In the short run,the competitive firm in this market
A) will not shut down because variable costs are zero.
B) has no fixed costs.
C) faces diminishing marginal returns.
D) can act as a price setter.
Q4) The above figure shows the cost curves for a typical firm in a competitive market.From the graph,estimate the firm's profits when price equals $10 per unit.
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Chapter 9: Applying the Competitive Model
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Sample Questions
Q1) What is one reason it might be difficult to dissuade people from pirating music off the Internet?
A) Consumer surplus is very high when music is pirated.
B) In general, consumers get a rush from "stealing."
C) Consumers mistakenly believe that the Internet is public domain.
D) Producer surplus is very low when music is pirated.
Q2) Suppose an industry trade group has convinced legislators that a price floor should be used so that producer surplus is maximized in the market for milk.The group argues that such a policy would save the "family farm." Assuming a downward-sloping linear demand curve and a horizontal long-run supply curve,determine the resulting price,output and social welfare from such a policy.Compare this result to the competitive equilibrium.
Q3) "Supporters of import restrictions and protectionist policies place greater weight on producer welfare than on consumer welfare." Comment.
Q4) Explain why the competitive output maximizes welfare.
Q5) Even if two competitive firms in the same market have different production technologies,they will each earn long-run zero profits.Why?
Q6) When is the profit a firm earns equal to the producer surplus? Explain.
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Chapter 10: General Equilibrium and Economic Welfare
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Sample Questions
Q1) Suppose the U.S.can produce 10 units of food and 5 units of clothing (or any such linear combination)and Canada can produce 6 units of food and 4 units of clothing (or any such linear combination).If trade occurs between these two countries,which should produce more food and which more clothing?
Q2) If everyone's utility is given equal weight and a change in resource allocation results in one person's gain exceeding another person's loss,we can say that the new allocation A) is Pareto superior to the original one. B) increases social welfare. C) decreases social welfare. D) is efficient.
Q3) At the competitive equilibrium quantity supplied equals quantity demanded in all markets.
A)True B)False
Q4) The above figure shows a production possibility frontier for a society with two members,Al and Bruce.If point "a" is the efficient product mix,draw a possible Edgeworth box and indifference curves.
Q5) How does competition ensure that the efficient product mix is attained?
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Chapter 11: Monopoly
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Sample Questions
Q1) When generic drugs enter the market after the patent for a brand name drug expires,the price of the brand name drug often increases.This is usually due to
A) the demand curve for the brand name drug shifting in but becoming more inelastic.
B) the demand curve for the brand name drug not shifting, but the marginal cost of producing the good increases.
C) the demand curve for the brand name drug shifting in but becoming more elastic.
D) the demand curve for the brand name drug not shifting, but loyal customers are willing to pay a higher price for the brand name drug.
Q2) Limited government licenses that create a monopoly do so because
A) the license generates a marginal cost advantage.
B) the monopoly will become a natural monopoly.
C) a barrier to enter the market exists.
D) All of the above.
Q3) Since a monopoly can set any price it wants,it always makes a profit.
A)True
B)False
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Chapter 12: Pricing and Advertising
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125 Flashcards
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Sample Questions
Q1) Stores such as Costco and Sam's Club require an annual membership before you can shop there.This is a form of
A) two part pricing.
B) price gouging.
C) a tie-in sale.
D) anti-competitive behavior.
Q2) When a firm uses a form of quantity discrimination that charges large purchasers less it is the high quantity purchasers that generate most profit.
A)True
B)False
Q3) Consider a car dealership advertises a three-year lease at $250 per month.When you arrive to apply,you discover that the lease requires a downpayment of $3600 dollars.You will undertake the lease if
A) you value the lease at least $350 per month.
B) you value the lease at least $250 per month, the $3600 is a sunk cost.
C) you value the lease less than $350 per month.
D) you value buying a new car at $400 per month.
Q4) Under what conditions would firms be likely to support an industry-wide advertising ban?
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Chapter 13: Oligopoly and Monopolistic Competition
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Sample Questions
Q1) The ability to set a price greater than marginal cost guarantees an economic profit for the monopolistic competitor (assuming P > AC).
A)True
B)False
Q2) Firms A and B are identical,produce identical products,and are the only firms in a market.Firm A's output is higher than Firm B's.This means that Firm B is the
A) Cartel leader.
B) Stackelberg leader.
C) Stackelberg follower.
D) Cournot leader.
Q3) The number of firms in a monopolistically competitive market will be smaller if A) the market demand curve shifts rightward.
B) the minimum efficient scale is lower.
C) fixed costs are smaller.
D) fixed costs are larger.
Q4) Explain why the intersection of the best-response functions is the Cournot equilibrium.
Q5) What happens in a duopoly if both firms try to act as the Stackelberg leader?
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Chapter 14: Game Theory
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Sample Questions
Q1) The above figure shows the payoff matrix facing an incumbent firm and a potential entrant.The potential entrant cannot earn a profit if the incumbent
A) chooses the Cournot level of output.
B) chooses the Stackelberg leader level of output.
C) shuts down.
D) deters entry.
Q2) A private auction is an auction in which
A) individuals know their own value of the good and everyone else's valuation, too.
B) individuals have their own valuation of the good but don't know everyone else's.
C) many auctions are auctioned off at the same time.
D) only one good is auctioned off.
Q3) The term prisoners' dilemma refers to a game in which
A) there are no Nash equilibria.
B) there are no dominant strategies.
C) the payoff from playing the dominant strategy is the same for each player.
D) the payoff from playing the dominant strategy is not the highest payoff possible.
Q4) How can a firm be made better off by limiting its options?
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Chapter 15: Factor Markets
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Sample Questions
Q1) The increase in total revenue due to increasing the amount of labor employed by one unit is called the
A) Marginal Product.
B) Marginal Revenue Product.
C) Average Revenue Product.
D) Total Revenue Product.
Q2) In the first years of a professional athlete's career,the athlete is "under reserve," which means that he or she cannot negotiate with other teams.This implies that,everything else equal,
A) the player's salary is probably higher than it otherwise would be.
B) the player's salary is probably lower than it otherwise would be.
C) the player's salary is probably the same as it otherwise would be.
D) the player is not hired by the team.
Q3) XYZ Co.operates in a competitive market.Its marginal product of labor is 1/L,and it takes the wage and price as given.Derive the firm's short-run demand for labor as a function of w and p.How much labor will the firm hire if w = 2 and p = 10?
Q4) Explain why baseball ticket prices may increase when a team pays a new player a large salary,but will remain unchanged when a current player gets a salary increase.
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Page 17
Chapter 16: Interest Rates, Investments, and Capital Markets
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Sample Questions
Q1) Suppose that your college offers you two payment plans for your last two years of college.You may either pay tuition of $20,000 per year at the beginning of each of the next two years,or pay just $38,000 before the start of freshman year.What would the interest rate have to be for you to be indifferent between these two deals? Explain.
Q2) A government policy that lets individuals put away money for retirement tax-free will
A) shift the demand curve for loanable funds rightward.
B) crowd out private investment.
C) shift the supply curve of loanable funds to the right.
D) induce people to save less at any interest rate.
Q3) If the interest rate received in Mexico is greater than that obtained in the United States,
A) the demand for loans will increase in Mexico.
B) the supply of loans will decrease in the United States.
C) the supply of loans will decrease in Mexico.
D) the demand for loans will decrease in the United States.
Q4) Explain how continuing technical progress may cause the price of scarce,exhaustible resources to fall over time.
Q5) In an economy with no inflation,explain why interest rates are positive.
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Chapter 17: Uncertainty
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Sample Questions
Q1) Suppose a blackjack gambler approaches an insurance company and seeks to purchase an insurance policy that his next trip to Reno,NV will not net $10,000.The insurance company
A) will sell her an insurance policy because the proposal entails uncertainty not risk.
B) will sell her an insurance policy because the proposal entails risk not uncertainty.
C) will not sell her an insurance policy because the proposal entails uncertainty not risk.
D) will not sell her an insurance policy because the proposal entails risk not uncertainty.
Q2) The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.To reduce the chance of theft to zero,Bob is willing to pay
A) $20.
B) $50.
C) $70.
D) $80.
Q3) Explain why insurance companies usually do not offer earthquake insurance.
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Chapter 18: Externalities, Open-Access, and Public Goods
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Sample Questions
Q1) Suppose that the market for steel is shown in the above figure.What specific tax would result in a competitive market producing the socially optimal quantity of steel?
Q2) A firm operates and produces pollution that only harms an individual,Bob.The firm and Bob both know the costs and benefits of reducing pollution.Neither the firm nor Bob acts strategically while bargaining,and there are no transaction costs associated with bargaining.Explain how the efficient level of pollution occurs no matter whether the firm or Bob owns the property right to pollution.
Q3) Which of the following goods has the property of rivalry?
A) national defense
B) a highway
C) air to breath
D) an outdoor movie screening
Q4) Which of the following policies address the the problem posed by positive externalities?
A) a subsidy to the agent that generates the positive externality
B) a tax on the agent that generates the positive externality
C) limit the activity that generates the positive externality
D) a subsidy to the agents that benefit from the positive externality
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Page 20
Chapter 19: Asymmetric Information
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Sample Questions
Q1) Explain how product liability laws can reduce adverse selection.
Q2) A firm is more likely to adopt multiple brand names for the same product when the good is a non-durable.
A)True
B)False
Q3) In the automobile insurance market,adverse selection occurs when
A) drivers with greater risks buy a policy with large deductibles.
B) drivers with greater risks buy a policy with no deductibles.
C) uninsured drivers drive recklessly.
D) insured drivers drive recklessly.
Q4) If sellers of good cars and sellers of lemons both offer a warranty on their cars,consumers will then be able to tell which cars are the lemons.
A)True
B)False
Q5) Joe wants to achieve the highest position possible with the XYZ Co.During the interview,he tells them he is capable of performing many difficult tasks.The company feels there is a 10% chance he is lying.Given the payoff matrix in the above figure,what job level will the company offer to Joe? Why?
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Chapter 20: Contracts and Moral Hazards
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Sample Questions
Q1) Assume a firm is run as a zero-profit enterprise.Which of the following would be true?
A) There is a higher probability that wage reductions would outweigh layoffs.
B) Those in charge would not act any different than regular owners, there would still be layoffs.
C) Those not in charge would remain risk neutral.
D) Wage reductions would be lower than they would be if the firm was run for profit.
Q2) Suppose an agent must pay the full marginal cost for an item but splits the marginal revenue with the principal.As a result,
A) joint profit is maximized.
B) joint profit is not maximized.
C) the agent will not enter into such a contract.
D) the agent wishes to sell as many items as he can.
Q3) Explain how more than one possible state of nature affects contract choices.
Q4) Monitoring is often used by firms in an attempt to decrease
A) shirking.
B) piece rates.
C) adverse selection.
D) signaling.
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Page 22