Test Questions & Answers Ch.21 The Economics Of Health Care

c21; Chapter 21: The Economics of Health Care

Learning Objectives

1. Describe the trends in costs and quality of U.S. health care
2. Compare the cost and quality of the U.S. healthcare relative to other developed nations
3. Describe the factors that have contributed to the rising cost of health care
4. Analyze the role that externalities play in the health care market
5. Assess the potential impacts of healthcare reform proposals

Multiple Choice

1. Americans are projected to spend __________________ on health care by 2020.
   1. $1,500 per person
   2. $10,000 per person
   3. $15,000 per person
   4. $17,500 per person

LO-1

Level: Easy

1. In 2010 the U.S. spent approximately _________ of U.S. total income on health care.
   1. 5%
   2. 8%
   3. 12%
   4. 16%

LO-1

Level: Easy

1. The U.S. spends approximately _______________ the percentage of national income on health than does the UK or Japan.
   1. One-fourth
   2. Two-thirds
   3. Double
   4. Three times

LO-2

Level: Easy

1. In comparison with other developed countries the U.S. has __________ infant mortality rates and _______ life expectancy.
   1. Higher; higher
   2. Lower; lower
   3. Higher; lower
   4. Lower; higher

LO-2

Level: Easy

1. Factors that have driven up health care costs include each of the following except
   1. Behavioral factors
   2. Insurance
   3. Technology
   4. Improved fitness facilities

LO-3

Level: Easy

1. One reason for the relatively larger increase in health care costs in America versus similar countries is America’s
   1. Rising use of health insurance, a third-party payer
   2. Increasing attention to health and fitness
   3. Faster and higher rate of use of high-tech medical care
   4. Decline in health-related issues

LO-3

Level: Moderate

1. The average cost of care for a premature infant in the United States is
   1. $25,000
   2. $50,000
   3. $70,000
   4. $100,000

LO-3

Level: Easy

1. Contributing to the high U.S. health care costs are
   1. Rates of obesity
   2. Smoking
   3. Hypertension
   4. All of the above

LO-3

Level: Easy

1. Which of the following is correct?
   1. A major cause of rising health care costs is because of limited supply of options of health care.
   2. A major cause of rising health care costs is the increased in taxes.
   3. A major cause of rising health care is lifestyle choices.
   4. A major cause of rising health care is the additional costs to employers.

LO-3

Level: Moderate

1. About _____________ of Americans use health insurance.
   1. 50%
   2. 75%
   3. 84%
   4. 99%

LO-3

Level: Easy

1. Medicare is government insurance for individuals
   1. Who are unemployed
   2. Who are over 65 years old
   3. Who are injured
   4. Who are poor

LO-3

Level: Easy

1. Medicaid is government insurance for
   1. The unemployed
   2. Americans over 65 years old
   3. The injured
   4. The poor

LO-3

Level: Easy

1. A reason for purchasing insurance is to
   1. Save
   2. Spread out risk among groups of people
   3. Defy risk
   4. Budget for the future

LO-3

Level: Easy

1. Those who purchase health insurance
   1. Benefit from purchasing the insurance because it reduces the risk of having to pay for all of the medical costs
   2. Benefit from purchasing the insurance because of it is risk neutral
   3. Benefit from purchasing the insurance because its increases uncertainty
   4. Benefit from purchasing the insurance because health insurance increases level of wages.

LO-3

Level: Moderate

1. A ___________ occurs when the provider or seller of a good or service is paid by someone other than the buyer of the good
   1. Deductible
   2. Positive externality
   3. Third-party payment
   4. All of the above

LO-3

Level: Easy

1. According to your health insurance you pay 25% of all covered health care expenses. This payment is called your
   1. Co-payment
   2. Deductible
   3. Third-party payment
   4. Externality

LO-3

Level: Moderate

1. You go to the doctors and your bill for the office visit and lab costs is $250.00. You have a 25% co-payment. What is your marginal cost of this visit?
   1. $25.00
   2. $62.50
   3. $200.00
   4. $250.00

LO-3

Level: Moderate

1. ______________ occurs when people change their behavior to undertake more risk.
   1. A third-party payment
   2. Deductible
   3. Moral hazard
   4. Risk-adversity

LO-3

Level: Easy

1. Moral hazard is an example of
   1. Risk-adversity
   2. Reverse incentive
   3. Risk neutrality
   4. Decreased demand

LO-3

Level: Difficult

1. John has health insurance through his work. He pays a minimal monthly amount for the insurance. Because the cost of the health insurance is primarily covered by a third party there is less incentive to practice healthful living behavior. This is an example of
   1. Adverse selection
   2. Moral hazard
   3. Symmetrical information
   4. Gresham’s Law

LO-3

Level: Moderate

1. Fee-for-service
   1. Typically increases demand for treatments prescribed
   2. Typically decreases demand for treatments prescribed
   3. Typically increases supply of treatments provided
   4. Typically decreases supply of treatments provided

LO-3

Level: Difficult

1. In a fee-for-service system
   1. Doctors charge a fee for each visit or procedure, rather than being paid a fixed salary
   2. Doctors are paid a fixed amount rather by visit or procedure
   3. Doctors receive an additional fee per visit or service in addition to a fixed amount
   4. Doctors have the ability to change the fee charged depending on the diagnosis.

LO-3

Level: Moderate

1. A physician-induced demand
   1. Occurs when patients demand more treatment than is prescribed
   2. Occurs when additional diagnostic treatments are requested to supplement the physician’s original requests
   3. Occurs when doctors prescribe more treatment than is necessary in order to increase their own income
   4. Occurs when insurance companies considers a treatment for coverage

LO-3

Level: Moderate

1. Which of the following is correct?
   1. The healthcare improvements experience a market failure because costs are imposed on a third party.
   2. The healthcare improvements experience a market failure because benefits are experienced by a third party.
   3. The optimal quantity of healthcare improvements occurs where MB_private = MC_private
   4. The optimal quantity of healthcare improvements occurs where MB_social = MC_private

LO-4

Level: Moderate

1. The marginal benefit(s) of healthcare includes
   1. A longer life
   2. A reduction of loss of output
   3. Increased quality of life
   4. All of the above

LO-4

Level: Moderate

1. The marginal benefits that accrue only to individual decision makers are
   1. Private marginal costs
   2. Private marginal benefits
   3. Social marginal costs
   4. Social marginal benefits

LO-4

Level: Easy

1. The marginal benefits that accrue to society as a whole are
   1. Private marginal costs
   2. Private marginal benefits
   3. Social marginal costs
   4. Social marginal benefits

LO-4

Level: Easy

1. When benefits are received by society in addition to the benefits received from the consumer of the product
   1. The private demand curve underestimates the social demand curve
   2. The social demand curve underestimates the private demand curve
   3. The private demand curve overestimates the social demand curve
   4. The social demand curve is equal to the private demand curve

LO-4

Level: Moderate

Reference: Use the graph below to answer questions 29-31.

1. **Which of the following represents the positive externality associated with health-improving activities?
   1. The distance between point A and B
   2. The distance between B and D
   3. The distance between D and C
   4. The distance between C and A

LO-4

Level: Difficult

1. **If there were no positive externality _____________ would be the optimal quality
   1. Q*_private
   2. Q*_social
   3. (Q*_social - Q*_private)
   4. Point D

LO-4

Level: Moderate

1. **With the positive externality _____________ would be the optimal quality.
   1. Q*_private
   2. Q*_social
   3. (Q*_social - Q*_private)
   4. Point D

LO-4

Level: Moderate

1. Social marginal benefits
   1. Is equal to private marginal benefits
   2. Is equal to private marginal benefits plus external benefits
   3. Is equal to private marginal costs minus external benefits
   4. Is equal to social marginal benefits plus private marginal benefits

LO-4

Level: Easy

1. External benefits received from a positive externality
   1. Is equal to social marginal benefits plus private marginal benefits
   2. Is equal to social marginal benefits minus private marginal benefits
   3. Is equal to private marginal benefits divided by external benefits
   4. Is equal to social marginal benefits divided by external benefits

LO-4

Level: Moderate

1. Approximately __________________ Americans are without any form of health insurance.
   1. 25 million
   2. 46 million
   3. 60 million
   4. 84 million

LO-5

Level: Easy

1. Methods included in recent health care reform bills include each of the following methods except
   1. Children can now stay on parents’ health insurance plans until age 26 rather than age 19 or when they finish college
   2. Small businesses have access to tax credits to help them provide health insurance for their employees
   3. Health insurance companies are allowed to screen applicants for preexisting conditions
   4. Health insurance companies are prohibited from ending coverage when people get sick

LO-5

Level: Moderate

1. While policies to expand health insurance to previously uninsured
   1. May potentially lower mortality rates for those without insurance
   2. Will increase costs to insurers and their customers
   3. Will decrease to social costs to private insurers
   4. Will impose additional benefits to private insurance owners

LO-5

Level: Moderate

1. Tradeoffs for expanding health insurance coverage include
   1. Increased costs
   2. Decreased social costs
   3. Increased private benefits
   4. Decreased external benefits

LO-5

Level: Easy

1. Proponents of mandated government insurance argue
   1. Increasing insurance will increase gross private investment from insurance companies
   2. Increasing insurance coverage will reduce costs that are passed on to others when an insured person seeks treatment in a hospital
   3. Increasing insurance coverage will reduce benefits passed on to private consumers of health-improving activities
   4. Increasing insurance coverage will increase national output due to increased health and productivity

LO-5

Level: Moderate

1. Opponents of government mandated insurance argue
   1. Requiring insurance impinges on individual freedom
   2. Requiring insurance increases private benefits
   3. Requiring insurance reduces private costs
   4. Requiring insurance reduces external benefits

LO-5

Level: Moderate