Analyzing Medical Care Markets Ch.3 Test Questions & Answers

Chapter 3: Analyzing Medical Care Markets

Multiple Choice

1. If a hospital is experiencing economies of scale,

1. its average cost curve is positively sloped as output increases.
2. its average cost curve is negatively sloped as output increases.
3. it should reduce its output level to lower costs.
4. quality is falling as output is rising.
5. both b and c are true.

2. When a physician knows more about alternative treatments than her patients, we say that _______ exists.

1. rational ignorance.
2. perfect information.
3. asymmetric information.
4. moral hazard.
5. adverse selection.

3. Under which of the following circumstances is the principal-agent problem likely to be most serious.

1. Between general practitioners and patients.
2. Between surgeons and patients.
3. Between hospitals and nurses.
4. Between dentists and physicians.
5. Between physicians and lawyers.

4. A patient has a medical condition, but he doesn’t know what it is. The physician he sees diagnoses his illness correctly. What term applies to this situation?

1. Principle-agent problem.
2. Rational ignorance.
3. Externalities.
4. Asymmetric information
5. The substitution effect.

5. The market for medical care relies primarily on:

1. For profit providers.
2. Not for profit providers.
3. Co-ops.
4. Hospitals.
5. The substitution effect.

6. Which of the following results from providers having more information about treatment alternatives than their patients?

1. Principle-agent problem.
2. Rational ignorance.
3. Externalities.
4. Adverse selection.
5. The substitution effect.

7. Nonexcludable and nonrival goods are known as

1. Public goods.
2. Private goods.
3. Efficient goods. .
4. Those which are the last to be purchased.
5. There is no such thing as goods which are both Nonexcludable and nonrival.

8. The optimal level of output may be defined as that level of output where

• 1. average benefit exceeds average cost by the greatest amount.
  2. total benefit equals total cost.
  3. marginal benefit exceeds marginal cost by the greatest amount.
  4. the marginal benefit of the last unit purchased equals its marginal cost.
  5. it is impossible to define optimal in any meaningful way.

9. Inoculation programs against certain diseases such as small pox, polio, and whooping cough create

1. public goods.
2. positive externalities in consumption.
3. nonrival goods.
4. nonexcludable goods.
5. external costs to society equal to the costs of the program.

10. In which of the following countries would an increase in per capita income likely result in the most improvement to health status of the population? (2006 per capita incomes in PPP dollars shown in parentheses.)

1. Mexico ($13,383)
2. New Zealand ($26,068)
3. Germany ($32,900)
4. United Kingdom ($34,084)
5. United States ($44,639)

11. Which of the following would likely lead to the greatest improvement in health status of the population in the United States?

1. Higher per capita incomes.
2. More spending on public health, such as improved water supply and sanitation.
3. More medical care spending overall.
4. Improved lifestyles, including reductions in the use of tobacco, alcohol, and drugs.
5. More rural hospitals.

12. What measures would likely lower infant mortality rates in the United States?

1. Prenatal care programs in low-income neighborhoods.
2. Reduced drug use among expectant mothers.
3. Better nutrition.
4. Delaying childbearing beyond the teen-age years.
5. All of the above.

13. Approximately what percentage of total health care spending goes toward hospital care?

1. One-tenth.
2. One-fifth.
3. One-fourth.
4. One-third.
5. One-half.

14. Approximately what percentage of total health care spending goes toward physicians’ services?

1. One-tenth.
2. One-fifth.
3. One-fourth.
4. One-third.
5. One-half.

15. A system financed primarily through retrospective fee-for-service insurance reimbursement is:

1. A closed system.
2. An open-ended system.
3. A cost-plus system.
4. An efficient system.
5. Both b and c.

16. Which of the following might cause a market to produce a quantity that is less than optimal?

1. A price ceiling above the market equilibrium price.
2. Market control by a monopolist.
3. A subsidy to low-income consumers.
4. None of the above.

17. Prospective payment in the hospital sector

1. resulted in the hospital keeping any surplus payment.
2. resulted in the hospital absorbing any loss from the payment.
3. changed the incentive structure completely.
4. all of these are true.

18. The government agency that controls the development and availability of new medical discoveries, including pharmaceutical drugs is

1. the Health Care Financing Administration.
2. the Food and Drug Administration.
3. the Centers for Disease Control.
4. the National Institutes for Health.
5. the Federal Emergency Medical Administration.