Deck 4: Insurance and Healthcare Market Analysis

Question 1

Which of the following is not an assumption used in class for reaching the conclusion, using utilitarian reasoning, that income should be divided equally:

A)everybody has the same utility function
B)there is a fixed amount of income to be divided
C)marginal utility is a diminishing function of income
D)some people are more productive than others

Answer 1

some people are more productive than others

Question 2

In the economic analysis of the market for new drugs, it is critical to take into account

A)inefficiency from monopoly power granted by patents
B)inequity generated by drug makers charging more than a medication costs to make
C)incentives for innovation by inventing new drugs
D)all of the above

Answer 2

all of the above

Question 3

Suppose that you have complete health insurance that covers all expenses. You will use medical care up to the point where your:

A)total benefits equal the costs of providing the medical care.
B)marginal benefit is zero.
C)marginal benefit is equal to the marginal cost of the medical care.
D)marginal benefit is equal to the total costs of providing the medical care. as

Answer 3

marginal benefit is zero.

Question 4

If the government subsidizes the health insurance costs of individuals because individuals do not sufficiently realize the importance of having health insurance, which of the following justifications for government intervention is being used?

A)high administrative costs
B)redistribution
C)ignorance
D)externalities

Question 5

Which of the following is a reason why employers are the predominant source of insurance?

A)insuring at the firm level reduces the extent to which insurance has moral hazard effects.
B)insuring at the firm level allows insurers to create large insurance pools with a predictable distribution of medical risk.
C)employee compensation in the form of medical expenditures is not taxed.
D)both b and c are correct.

Question 6

An individual is willing to pay something for information because

A)information is costly.
B)it is always better to know than not to know.
C)this allows him or her to increase utility.
D)information is a public good.

Question 7

An individual will not choose to acquire all available information because

A)that would maximize utility given his or her budget constraint.
B)that would violate the assumption of risk aversion.
C)there are increasing returns to additional information.
D)there are decreasing marginal costs to acquiring information.

Question 8

A market participant who obeys the principles of rational expectations will base his or her expectations of market price on

A)all possible information about supply and demand curves.
B)all possible information about the history of price movements.
C)rational behaviour by other market participants.
D)rational behaviour by government regulators.

Question 9

The standard economic model assumes people are

A)rational
B)boundedly rational
C)altruistic
D)emotional

Question 10

What is the methodology of positive economics

A)models should say what it is optimal for a person to do
B)models should be as realistic as possible
C)models should be judged on their assumptions
D)models should be judged on their ability to predict