Deck 5: The Economics of Health Care

Question 1

Health problems prevent people from working harder,which can lower a country's total income.This indicates that in effect,health problems

A) are a primary cause of price decreases.
B) increase the incentive to work.
C) shift country's production possibilities frontier inward.
D) decrease consumer surplus.

Answer 1

shift country's production possibilities frontier inward.

Question 2

Health insurance plans which typically reimburse doctors and hospitals with payment for each service they provide are known as

A) fee-for-service plans.
B) preferred provider organizations.
C) single-health-payer systems.
D) health maintenance organizations.

Answer 2

fee-for-service plans.

Question 3

In the United States from 1981 to 2009,deaths from which of the following increased?

A) cancer
B) kidney disease
C) heart attacks
D) strokes

Answer 3

kidney disease

Question 4

In 2011,the average height of adult males in the United States was

A) 5' 7."
B) 5' 9."
C) 6' 0."
D) 6' 4."

Question 5

In 2011,the average life expectancy at birth in the United Kingdom and other high-income countries was around ________ years.

A) 60
B) 70
C) 80
D) 90

Question 6

Briefly describe changes in life expectancy,average height,and infant mortality in the United States since 1850.

Question 7

Between 1981 and 2009,deaths from kidney disease increased largely due to the effects of

A) increasing obesity.
B) increasing alcohol consumption.
C) increased smoking.
D) increased pollution.

Question 8

In the United States in 2009,the percentage of people with some form of health insurance was about

A) 17%.
B) 29%.
C) 54%.
D) 83%.

Question 9

In the United States in 2009,the percentage of people without some form of private health insurance was about

A) 17%.
B) 29%.
C) 46%.
D) 83%.

Question 10

The health care system in ________ is referred to as socialized medicine,under which the government owns most of the hospitals and employs most of the doctors.

A) Canada
B) Japan
C) the United Kingdom
D) the United States

Question 11

In the United States from 1981 to 2009,deaths from ________ increased largely due to the effects of increasing obesity.

A) strokes
B) cancer
C) heart attacks
D) diabetes

Question 12

In the United States in 2010,the percentage of firms that employed more than 200 workers and did not offer health insurance as a fringe benefit to the workers was about

A) 1%.
B) 29%.
C) 44%.
D) 99%.

Question 13

Changes in the health of the average person are relatively unimportant as an indicator of changes in the standard of living.

Question 14

How can increases in a country's total income improve health?

Question 15

The health care system in ________ is referred to as a universal health insurance system,under which every resident is required to enroll in either a private or the government-provided health insurance program.

A) Canada
B) Japan
C) the United Kingdom
D) the United States

Question 16

The overall mortality rate in the United States has declined for the past 30 years.

Question 17

Which of the following did not contributed to the overall decline in death rates in the United States since 1981?

A) a decline in smoking
B) the decline in the population
C) the availability of new prescription drugs
D) new surgical techniques

Question 18

On average,people in low-income countries ________ than people in high-income countries.

A) have a longer life expectancy
B) are subject to a lower infant mortality rate
C) are shorter
D) are exposed to fewer severe diseases

Question 19

The health care system in Canada is referred to as ________,and is a system in which the government provides national health insurance to all Canadian residents.

A) an out-of-pocket system
B) a single-payer health care system
C) a universal health insurance system
D) socialized medicine

Question 20

Most doctors are employed by the government and most hospitals are owned by the government in

A) Canada.
B) Japan.
C) the United Kingdom.
D) the United States.

Question 21

In the United States in 2009,over 50 percent of people without health insurance were below the age of 34.

Question 22

In which of the following countries does health insurance not pay for most preventive care procedures?

A) Canada
B) Japan
C) the United Kingdom
D) the United States

Question 23

What is the term that describes a situation in which one party to an economic transaction has less information than the other party?

A) inefficient market hypothesis
B) asymmetric information
C) unequal market structure
D) monopsony

Question 24

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

A) Canada
B) Japan
C) the United Kingdom
D) the United States

Question 25

Pricing insurance policies is made difficult because buyers have more information than sellers.This difficulty is an example of

A) moral hazard.
B) adverse selection.
C) asymmetric information.
D) the free rider problem.

Question 26

In the market for insurance,

A) buyers often have more information than sellers.
B) sellers often have better information than buyers.
C) sellers are protected from lawsuits brought by buyers.
D) demand is perfectly inelastic because, by law, home owners and automobile drivers must have insurance.

Question 27

The Pre-Existing Condition Insurance Plan is a federally administered part of the Affordable Care Act,and is designed for people with pre-existing medical conditions to obtain insurance.By offering health insurance to all U.S.citizens with pre-existing medical conditions,the Pre-Existing Condition Insurance Plan

A) eliminates asymmetric information for the insurer, but not for the insured.
B) eliminates asymmetric information for the insured, but not for the insurer.
C) eliminates asymmetric information for both the insurer and the insured.
D) reduces, but does not eliminate,, asymmetric information for both the insurer and the insured.

Question 28

Substantial co-payments are typically not required as a part of the health care system in

A) Canada and the United Kingdom.
B) Japan and Canada.
C) the United States and Japan.
D) Japan and the United Kingdom.

Question 29

A majority of people in the United States do not have private health insurance.

Question 30

On average,people in the United States spend a smaller percentage of their income on health care than do people in most other countries.

Question 31

Briefly describe the types of health care systems in Canada,Japan,and the United Kingdom.

Question 32

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

A) moral hazard.
B) the principle-agent problem.
C) asymmetric information.
D) adverse selection.

Question 33

The largest government-run health care system in the world,with 1.7 million employees,is the National Health Service (NHS)in the United Kingdom.The NHS receives its funding primarily from

A) tariffs.
B) the World Health Organization.
C) income taxes.
D) private businesses.

Question 34

Of the following high-income countries,which has the highest life expectancy at birth?

A) Canada
B) Japan
C) the United Kingdom
D) the United States

Question 35

Of the following high-income countries,which has the highest mortality ratio for cancer?

A) Canada
B) Japan
C) the United Kingdom
D) the United States

Question 36

Consumers usually pay less than the total cost of medical treatment because

A) a third party, usually an insurance company, often pays most of the bill.
B) the federal government pays for most medical procedures.
C) competition forces doctors and hospitals to charge prices that do not cover their costs.
D) a third party, usually an employer, often pays most of the bill.

Question 37

In ________,health care spending per person based on income per person is significantly higher than the average for most other countries.

A) Austria
B) Canada
C) Norway
D) the United States

Question 38

Health care is generally considered a normal good.Briefly explain what you would expect to see happen to spending on health care over time,with health care being considered as a normal good.

Question 39

Typically,the ________ in a country,the higher the level of spending per person on health care.

A) higher the level of income per person
B) larger the population
C) higher the level of income taxes
D) lower the median age of the population

Question 40

In the United States,the bulk of health care spending is paid by health insurance companies.Such a system is also called ________ where consumers of health care pay a nominal fee and the rest are paid by the health insurance provider.

A) universal health care system
B) third-party payer system
C) socialized medicine system
D) single=payer system

Question 41

________ occurs when actions taken by one party to a transaction are different from what the other party expected at the time of the transaction.

A) Adverse selection
B) Risk Aversion
C) Fraud
D) Moral hazard

Question 42

Adverse selection will occur in a market as a result of

A) asymmetric information.
B) moral hazard.
C) the sale of "lemons."
D) rational ignorance.

Question 43

Two consequences of asymmetric information are adverse selection and moral hazard.An important distinction between the two is

A) adverse selection exists prior to the completion of a transaction while moral hazard occurs after the transaction is completed.
B) moral hazard exists prior to the completion of a transaction while adverse selection occurs after the transaction is completed.
C) adverse selection leads to an inefficient quantity while moral hazard leads to an efficient quantity.
D) moral hazard leads to an inefficient quantity while adverse selection leads to an efficient quantity.

Question 44

________ occurs when one party takes advantage of having more information than another party about the attributes of the good or service they will exchange.

A) A negative externality
B) Moral hazard
C) A transaction cost
D) Adverse selection

Question 45

The study of the problems due to asymmetric information was begun when economists analyzed which type of market?

A) the market for citrus fruit
B) the market for insurance
C) farmers' markets
D) the market for automobiles

Question 46

Which of the following is an example of adverse selection?

A) The odds of a fire rise after a building is insured because the person with fire insurance is likely to pay less attention to fire hazards.
B) Someone who did not install fire alarms and a sprinkler system in a building he owns buys insurance for the building.
C) Someone with automobile insurance drives more recklessly than someone without insurance.
D) People prefer to buy new cars rather than used cars.

Question 47

Because of asymmetric information,most used cars that are offered for sale will be sold for prices that are greater than their true value.Because of this fact,the used car market falls victim to

A) the free rider problem.
B) deadweight loss and economic inefficiency.
C) a surplus of used cars.
D) adverse selection.

Question 48

Which of the following Nobel laureates became known for the study of asymmetric information?

A) Gary Becker
B) Michael Spence
C) George Ackerlof
D) Ronald Coase

Question 49

Some economists have argued that certain characteristics of the delivery of health care justify government intervention.One of these characteristics is

A) health care is a public good.
B) health care is nonrivalrous and nonexcludable.
C) health care generates negative externalities.
D) health care generates positive externalities.

Question 50

All of the following are ways in which health insurance companies can potentially reduce adverse selection except

A) by insuring only large groups of people.
B) by lowering the co-payments and deductibles on the policies they issue.
C) by refusing to insure some applicants, for example based on prior health conditions.
D) by finding out as much information about a person applying for insurance, for example requiring a medical examination.

Question 51

Why is the study of asymmetric information associated with the market for "lemons"?

A) Sellers of citrus fruit - lemons, oranges, grapefruit - know the difference between bad fruit and good fruit; buyers do not have this information.
B) Because there is little advertising in the market for lemons, buyers have difficulty determining the quality of lemons before they are purchased.
C) Potential buyers of used cars have difficulty separating good used cars from bad used cars; bad used cars are often referred to as "lemons."
D) Most sellers of used cars have less information about their cars than the dealers who buy them; used cars are often referred to as "lemons."

Question 52

Adverse selection in the market for health insurance arises because

A) many insurance companies care more about profits than they do about providing services for their customers in the event of illness.
B) the federal government intervenes in insurance markets by controlling prices and reimbursement policies.
C) insurance companies are not allowed to charge premiums that are high enough to insure against "worst-case" illness.
D) buyers of insurance know more than insurance companies about the likelihood of an illness for which buyers want insurance.

Question 53

In the principal-agent relationship,the principal is

A) the owner of a resource that has hired a third party to act in the best interest of that third party.
B) the person who is placed in control over resources that are not his own, with a contractual obligation to use these resources in the interests of some other party.
C) the person who is placed in control over resources that are not his own and agrees to compensate the resource owner in the event of outcomes that do not satisfy the resource owner.
D) the person who places his resources in professional hands in exchange for the professional's promise to act on the resource owner's behalf.

Question 54

Suppose that in a market for used cars,there are good used cars and bad used cars (lemons).Consumers are willing to pay as much as $6,000 for a good used car but only $1,000 for a lemon.Sellers of good used cars value their cars at $5,000 each and sellers of lemons value their cars at $800 each.Buyers cannot tell if a used car is reliable or is a lemon.Based on this information,what is the likely outcome in the market for used cars?

A) Both good used cars and lemons will sell for $4,500 each.
B) Only lemons will sell, for $800 each.
C) Both good used cars and lemons will sell for $1,000 each.
D) Most used cars offered for sale will be lemons.

Question 55

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

A) bad faith.
B) economic inefficiency.
C) moral hazard.
D) market failure.

Question 56

In the 1973 movie Save the Tiger,Jack Lemmon plays Harry Stoner,the CEO of a clothing manufacturer whose business has fallen on hard times. At one point in the movie,Stoner convinces his partner to hire someone to burn one of their buildings to collect on their insurance policy.What term refers to the information problem that led the insurance company to sell a policy for this building to Stoner and his partner?

A) rational ignorance
B) the principal-agent problem
C) adverse selection
D) moral hazard

Question 57

Health insurance markets have a problem with insuring people who are "poor health risks" while many people who are "good health risks" do not buy insurance.This problem is an example of

A) moral hazard.
B) adverse selection.
C) market signaling.
D) asymmetric information.

Question 58

The difference between adverse selection and moral hazard is that

A) moral hazard happens at the time parties enter into a transaction; adverse selection occurs after the transaction takes place.
B) adverse selection happens at the time parties enter into a transaction; moral hazard occurs after the transaction takes place.
C) moral hazard is the motive that is behind one party entering into a transaction with another party. Adverse selection refers to the other party being harmed by the transaction.
D) moral hazard refers to the likelihood that a transaction will lead one party to be better off at the expense of the other party to the transaction. Adverse selection refers to the consequences of the transaction after it has occurred.

Question 59

The principal-agent problem is a problem

A) caused by a person (principal) who hires an agent to act on his behalf but is unwilling to delegate authority to the agent to carry out the task in the best possible way.
B) caused by agents pursuing their own interests rather than the interests of the principals who hired them.
C) of the power system of boss and subordinate where the boss (principal) exerts influence over his subordinates (agents) using punishment or threat.
D) that exists when a person (principal) has more information about the task than the agent he hires to perform the task.

Question 60

In the 1973 movie Save the Tiger,Jack Lemmon plays Harry Stoner,the CEO of a clothing manufacturer whose business has fallen on hard times.In one of the key scenes of the movie,Stoner tries to convince his partner that they should hire someone to burn one of their buildings in order to collect on their insurance policy. Harry Stoner's actions are an example of

A) adverse selection.
B) moral hazard.
C) self-interest.
D) asymmetric information.

Question 61

Suppose you see a 2008 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?

Question 62

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

A) growing at a slower rate.
B) growing at a faster rate.
C) growing at approximately the same rate.
D) declining at approximately the same rate.

Question 63

Under current U.S.tax laws individuals do not pay taxes on health insurance benefits they receive from their employers.

Question 64

By the year 2010,health care spending on Medicare,Medicaid,and other U.S.government programs as a percentage of GDP had reached a level of

A) 2.2 percent.
B) 5.5 percent.
C) 17.5 percent.
D) 21.5 percent.

Question 65

How might a company that offers to handle all paperwork involved with a health insurance claim for a flat fee face the problem of adverse selection?

Question 66

________ account(s)for between 1 and 4 percent of health care costs in the United States.

A) The aging population
B) Uninsured patients receiving treatments at hospital emergency rooms that could have been provided less expensively at doctor's offices
C) The payments to settle malpractice lawsuits and the premiums doctors pay for malpractice insurance
D) Advances in medical technology

Question 67

A doctor pursuing the interests of his patients rather than his own interests is an example of the principal-agent problem.

Question 68

One consequence of adverse selection in the market for used cars is that most used cars sold will be lemons.

Question 69

Explain why is it difficult for people who are seriously ill to buy health insurance.

Question 70

The Congressional Budget Office estimates that ________ account(s)for less than 1 percent of health care costs in the United States.

A) the aging population
B) uninsured patients receiving treatment in hospital emergency rooms that could have been provided less expensively at doctor's offices
C) the payments to settle malpractice lawsuits and the premiums doctors pay for malpractice insurance
D) advances in medical technology

Question 71

What is asymmetric information?

Question 72

Adverse selection is a situation in which one party to an economic transaction has less information than the other party.

Question 73

In 2011,health care's share of gross domestic product in the United States was about

A) 6.5 percent.
B) 17.5 percent.
C) 45 percent.
D) 62.5 percent.

Question 74

Under current tax law individuals do not pay taxes on health insurance benefits they receive from their employers.As a result

A) the federal government spends more than it receives in tax revenue.
B) individuals are encouraged to want generous health coverage that reduces their incentives to cut costs.
C) the quality of health care provided is less than it would be if benefits were taxed.
D) politicians are encouraged to raise income and payroll taxes.

Question 75

How do adverse selection and moral hazard affect the market for insurance?

Question 76

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.

Question 77

In the United States,out-of-pocket spending on health care per person

A) has been rising since 1965.
B) has been falling since 1965.
C) has remained fairly steady since 1965.
D) fell from 1965 through 1995, then began to rise from 1995 to the present.

Question 78

Insurance companies use deductibles and coinsurance to reduce moral hazard.

Question 79

Adverse selection refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off.

Question 80

Two key consequences of asymmetric information are adverse selection and moral hazard.Define each concept,provide one example of each and explain how the two concepts differ.