Exam 7: The Economics of Health Care

Article Summary An Organisation for Economic Co-operation and Development (OECD) report states that administration costs for health care in the United States are the highest in the developed world, accounting for over 8 percent of spending in the health care sector, compared to a global average of about 3 percent. According to the report, expensive surgeries, high pharmaceutical costs, and corrupt practices increased global health care costs, and poor coordination between health care providers, duplication of tasks, and excessive time spent on paperwork all contributed to higher administrative costs. The report also noted that administrative costs are generally lower under government-managed health care systems than with private insurance, but governments could still significantly cut spending and improve patients' health. -Refer to the Article Summary. The article discusses the high administrative costs of health care in the United States. Even if private insurance companies were more efficient and brought administrative costs down, consumers would ________ the full cost of medical treatment. This would result in the market equilibrium price and quantity of medical services being ________ than the efficient equilibrium price and quantity.

If a doctor knows that an insurance company will pay for most of a patient's bill, the doctor has more of an incentive to require additional medical procedures and tests, even if the patient may not require them. This is an example of

Suppose you see a 2012 Ford Mustang GT advertised in the local newspaper for $15,000. If you knew the car was reliable, you would be willing to pay $17,000 for it. If you knew the car was unreliable, you would only be willing to pay $12,000 for it. Under what circumstances should you buy the car at the asking price?

Briefly describe the most important differences between the market for health care and the market for other goods and services.

Most employees ________ on the value of health insurance provided by employers, and most people ________ when buying individual health insurance policies.

In markets with asymmetric information

Economists refer to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off as

Figure 7-2 Figure 7-2 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. -Refer to Figure 7-2. At the market equilibrium

Figure 7-2 Figure 7-2 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. -Refer to Figure 7-2. The market equilibrium quantity is ________ thousand vaccinations.

The principal-agent problem is a problem

Figure 7-2 Figure 7-2 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. -Refer to Figure 7-2. The efficient equilibrium price is

Of the following high-income countries, which has the highest infant mortality rate?

If a hospital knows that an insurance company will pay for most of a patient's bill, the hospital has more of an incentive to require additional medical procedures and tests, even if the patient may not require them. This is an example of

The situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction is known as adverse selection.

Figure 7-5 Figure 7-5 represents the market for medical services with and without insurance, and the effect of a third-party payer system on the demand for medical services. -Refer to Figure 7-5. With insurance and a third-party payer system, what price do consumers pay for medical services?

Of the following high-income countries, which has the highest male life expectancy at age 65?

Compared to other high-income countries, health care spending per person in the United States has been

________ tended to increase spending on health care in the United States.

Figure 7-4 Figure 7-4 represents the market for medical services with and without insurance, and the effect of a third-party payer system on the demand for medical services. -Refer to Figure 7-4. With insurance and a third-party payer system, the equilibrium quantity of medical services is

Adverse selection in the market for health insurance arises because