Deck 2: The Role of Government in Health and Medical Care

Question 1

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 1

B
In the case of firsthand smoke, the original smoker is part of the market. When they make the conscious choice to smoke, they are internalizing both the private benefit and the private harm it imposes on them. On the other hand, secondhand smoke causes harm to individuals who are not part of the market for cigarettes. The other options cause changes within the market, but not externally.

Question 2

Use the following information to answer the questions below.You are an advisor to a teaching hospital.The marginal private benefit to consumers of an inpatient day at this hospital is MPB = 1000 - 4Q and the marginal private cost is equal to $200.
Graph the Marginal Private Cost (MPC)and the Marginal Private Benefit.

Answer 2

Question 3

In the graph above, the socially optimal price is

A)$24
B)$12
C)$10
D)$4

Answer 3

B
The socially optimal equilibrium occurs where MSC is equal to demand. In this case, the two curves intersect at a price of $12 and a quantity of 8.

Question 4

Use the following information to answer the questions below.You are an advisor to a teaching hospital.The marginal private benefit to consumers of an inpatient day at this hospital is MPB = 1000 - 4Q and the marginal private cost is equal to $200.
Find the equilibrium price and quantity in the private market.

Question 5

Which of the following is not an example of a demand subsidy?

A)Medicare
B)Medicaid
C)SCHIP
D)Veterans Administration medical system

Question 6

Which of the following transfers is most efficient?

A)$10 itunes gift card
B)$100 medical care tax credit
C)$100 in cash
D)$100 health insurance subsidy

Question 7

When MPC is less than

Question 8

Which of the following is not an "in kind" transfer?

A)$10 itunes gift card
B)$100 medical care tax credit
C)$100 in cash
D)All of the above

Question 9

In the graph above, the private market price is

A)$25
B)$13
C)$11
D)$5

Question 10

Which of the following statements is true about the medical care market?

A)Both patients and providers have perfect knowledge of prices in the market.
B)Both patients and providers have an incentive to minimize costs.
C)Medical resources are very mobile.
D)None of the above

Question 11

Use the following information to answer the questions below.You are an advisor to a teaching hospital.The marginal private benefit to consumers of an inpatient day at this hospital is MPB = 1000 - 4Q and the marginal private cost is equal to $200.
Given both the marginal external benefit and the marginal external cost,what is the net effect on society of producing at the private optimum?

Question 12

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

Question 13

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

Question 14

Use the following information to answer the questions below.You are an advisor to a teaching hospital.The marginal private benefit to consumers of an inpatient day at this hospital is MPB = 1000 - 4Q and the marginal private cost is equal to $200.
An unpleasant byproduct of hospital production is medical waste.Medical waste has an external marginal cost (MEC)of $100 per inpatient day.Graph the marginal social cost curve

Question 15

Use the following information to answer the questions below.You are an advisor to a teaching hospital.The marginal private benefit to consumers of an inpatient day at this hospital is MPB = 1000 - 4Q and the marginal private cost is equal to $200.
Each inpatient day at the teaching hospital helps train medical residents to become better physicians.This has a social external benefit MEB to society of $200 per inpatient day.Graph the MEB curve and find the socially optimal price and quantity.

Question 16

The arguments against price competition in the medical care market is

A)Lack of responsiveness to patient demand
B)Lack of medical innovation
C)Lack of sufficient consumer protection
D)Lack of efficiency

Question 17

The private market cannot eliminate externalities when

A)Marginal cost is high
B)Marginal cost is low
C)Transaction costs are high
D)Transaction costs are low

Question 18

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.

Question 19

In the graph above, which area represents the size of the externality?

A)I
B)II
C)III
D)Iv

Question 20

A "natural monopoly" is the result of

A)Government regulation
B)Constant average cost
C)Increasing average cost
D)Decreasing average cost