Q&A Hero

Q: Figure 7-2 Figure 7-2 represents the market for medical services with and without insurance, and the effect of a third-party payer system on the demand for medical services. Refer to Figure 7-2. With insurance and a third-party payer system, what is the amount of the deadweight loss? A) $0 B) $1,500 C) $3,000 D) $9,500

Q: Figure 7-2 Figure 7-2 represents the market for medical services with and without insurance, and the effect of a third-party payer system on the demand for medical services. Refer to Figure 7-2. The efficient quantity of medical services is A) 200. B) 500. C) 700. D) >700.

Q: Figure 7-2 Figure 7-2 represents the market for medical services with and without insurance, and the effect of a third-party payer system on the demand for medical services. Refer to Figure 7-2. The efficient price of medical services is A) $25. B) $40. C) $55. D) >$55.

Q: Figure 7-2 Figure 7-2 represents the market for medical services with and without insurance, and the effect of a third-party payer system on the demand for medical services. Refer to Figure 7-2. With insurance and a third-party payer system, the equilibrium quantity of medical services is A) 200. B) 500. C) 700. D) >700.

Q: Figure 7-2 Figure 7-2 represents the market for medical services with and without insurance, and the effect of a third-party payer system on the demand for medical services. Refer to Figure 7-2. With insurance and a third-party payer system, what price do consumers pay for medical services? A) $25 B) $40 C) $55 D) >$55

Q: Figure 7-2 Figure 7-2 represents the market for medical services with and without insurance, and the effect of a third-party payer system on the demand for medical services. Refer to Figure 7-2. With insurance and a third-party payer system, what price do doctors receive for medical services? A) $25 B) $40 C) $55 D) >$55

Q: Figure 7-2 Figure 7-2 represents the market for medical services with and without insurance, and the effect of a third-party payer system on the demand for medical services. Refer to Figure 7-2. If consumers paid the full price of medical services, the equilibrium quantity would be A) 200. B) 500. C) 700. D) >700.

Q: Figure 7-2 Figure 7-2 represents the market for medical services with and without insurance, and the effect of a third-party payer system on the demand for medical services. Refer to Figure 7-2. If consumers paid the full price of medical services, the price they would pay is A) $25. B) $40. C) $55. D) >$55.

Q: Because consumers who have insurance provided by their employers usually only pay a deductible for a visit to the doctor's office A) employers have more incentive to allow employees time off for doctor visits. B) doctors have less incentive to control their costs. C) insurance companies have more incentive to approve medical procedures for their policy holders. D) consumers have less incentive to visit the doctor's office on a more frequent basis.

Q: Because consumers who have insurance provided by their employers usually only pay a deductible for a visit to the doctor's office A) they demand a larger quantity of health care services than they would if they paid a price that better represented the true cost of providing the service. B) they demand a smaller quantity of health care services than they would if they paid a price that better represented the true cost of providing the service. C) the doctors supply a smaller quantity of health care services than they would if the consumer paid a price that better represented the true cost of providing the service. D) the insurance companies provide a larger quantity of health care services than they would if the consumer paid a price that better represented the true cost of providing the service.

Q: In the United States, consumers usually pay ________ than the true cost of medical treatment because of ________. A) more; adverse selection B) more; rising insurance premiums C) less; third-party payers D) less; rising insurance deductibles

Q: The Congressional Budget Office estimates that most of the increase in federal spending on Medicare and Medicaid will be due to A) the aging population. B) increases in the cost of providing health care. C) increases in immigration. D) declining income levels.

Q: The number of people receiving Medicare is expected to ________ by the year 2030. A) reach 5 million by B) stabilize C) decline by 10 percent D) grow to 80 million

Q: In the United States, health care spending on people over age 65 is ________ on people aged 18 to 24. A) one third as much as B) twice as much as C) six times greater than D) forty times greater than

Q: The aging of the U.S. population has tended to ________ spending on health care, and the development of new drugs and medical equipment has tended to ________ spending on health care. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

Q: Of the following, which has most likely contributed the most to the rapid rise in health care costs in the United States? A) the cost of malpractice insurance B) the cost to treat uninsured patients C) slow growth in labor productivity in health care D) the cost of malpractice lawsuit settlements

Q: Growth in labor productivity in health care has been ________ labor productivity in the economy as a whole. A) approximately equal to B) slightly faster than C) almost twice as fast as D) less than half as fast as

Q: Uninsured patients receiving treatments at hospital emergency rooms that could have been provided less expensively at doctor's offices account for ________ of health care costs in the United States. A) between 1 and 4 percent B) approximately 25 percent C) almost 40 percent D) between 15 and 20 percent

Q: The Congressional Budget Office estimates that the payments to settle malpractice lawsuits and the premiums doctors pay for malpractice insurance account for ________ of health care costs in the United States. A) between 20 and 30 percent B) roughly half C) less than 1 percent D) a vast majority

Q: Based on the current rate of growth, health care spending as a percentage of GDP through Medicare, Medicaid, and other U.S. government programs is expected to A) stabilize within the next 20 years. B) account for a majority of spending as a percentage of GDP within 5 years. C) slow down during this decade. D) more than double over the next 40 years.

Q: In the United States, out-of-pocket spending on health care was ________ percent of all health care spending in 2011. A) 2 B) 11 C) 33 D) 51

Q: In the United States, out-of-pocket spending on health care as a percentage of all spending on health care has ________ since 1960. A) slowly risen B) steadily declined C) more than doubled D) remained stable

Q: Compared to other high-income countries, health care spending per person in the United States has been A) growing at a faster rate. B) declining at a faster rate. C) growing at approximately the same rate. D) declining at approximately the same rate.

Q: In the United States, total health care spending per person has been ________, and out-of-pocket spending on health care per person has been ________. A) rising; rising B) rising; falling C) falling; rising D) falling; falling

Q: By the year 2019, health care's share of gross domestic product in the United States is projected to A) return to its 1995 level. B) have declined to only 6.5 percent. C) be more than three times as high as it was in 1965. D) reach a level of 75 percent.

Q: Vaccinations tend to result in a positive externality. Draw a graph showing the market for vaccinations, including both the marginal private benefit curve and the marginal social benefit curve. Identify the market equilibrium price and quantity, the efficient equilibrium price and quantity, and the deadweight loss.

Q: What is an externality? Explain how someone receiving a meningitis vaccination is an example of an externality in the market for health care.

Q: Why might a young, healthy person choose not to buy health insurance?

Q: What is moral hazard?

Q: Suppose you see a 2006 Scion xB Sport Wagon advertised in the local newspaper for $8,500. If you knew the car was reliable, you would be willing to pay $10,000 for it. If you knew the car was unreliable, you would only be willing to pay $5,500 for it. Under what circumstances should you buy the car?

Q: What is the principle-agent problem?

Q: What is adverse selection?

Q: Health insurance companies impose deductibles on policies and co-payments on claims to reduce the problem of adverse selection.

Q: In a market with positive externalities, the market equilibrium price will be less than the efficient equilibrium price.

Q: College education tends to result in a negative externality because the recipient does not receive the full benefit of the education.

Q: Vaccinations tend to result in a positive externality.

Q: Moral hazard refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off.

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

Q: Adverse selection is a situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.

Q: If a state requires all drivers to buy health insurance, the problem of adverse selection is eliminated.

Q: The situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction is known as asymmetric information.

Q: Due to adverse selection,very few lemons will be sold in the market for used cars.

Q: One effect of adverse selection in a market is that the equilibrium quantity of the product may be smaller than it would have been if there were no information problems.

Q: How do current tax laws in the United States favor employer-based health care insurance? A) Individuals who receive health insurance benefits are allowed to deduct the value of these benefits from their taxable income. B) Employers who provide health insurance benefits are reimbursed by the government and are not taxed on these reimbursements. C) Individuals who receive health insurance benefits do not pay taxes on the value of these benefits. D) Health insurance companies that provide insurance to employers are subject to a lower tax rate than those insurance companies that provide insurance to private individuals.

Q: In the United States, the bulk of health care spending is paid by health insurance companies. Such a system is also called a third-party payer system where consumers of health care pay a nominal fee and the rest are paid by the health insurance provider. Why might such a system lead to an inefficient outcome? A) Health insurance companies have an incentive to control cost and therefore tend to deny consumers many cutting edge medical treatments. B) Consumers have an incentive to over-consume health care services because they pay prices well below the cost of providing these services. C) Physicians concerned that insurance companies may not approve payments tend not to order expensive tests for their patients. D) Consumers fearing that excessive use of health care services may lead to a rise in insurance premiums tend to under-consume health care services.

Q: Vaccinating people against a communicable disease such as influenza not only reduces the chances that the person vaccinated will catch the disease but also reduces the probability that an epidemic of the disease will occur. Which of the following statements is true? A) Reducing the chances that the person vaccinated will catch the disease is a private cost while reducing the probability of an influenza epidemic is a social benefit. B) Vaccinating people against communicable diseases yields private benefits in excess of social benefits. C) Reducing the chances that the person vaccinated will catch the disease is a private benefit while reducing the probability of an influenza epidemic is a social benefit. D) The benefits of the influenza vaccination outweigh the costs.

Q: Because of the positive externality of vaccinations, economic efficiency would be improved A) if fewer people were vaccinated. B) if more people were vaccinated. C) only if all people were vaccinated. D) only if no people were vaccinated.

Q: Figure 7-1 Figure 7-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. Refer to Figure 7-1. At the market equilibrium, the deadweight loss is equal to A) $0. B) $250,000. C) $500,000. D) $1,000,000.

Q: Figure 7-1 Figure 7-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. Refer to Figure 7-1. At the market equilibrium A) the marginal benefit is equal to the marginal cost. B) the marginal benefit is greater than the marginal cost. C) the marginal benefit is less than the marginal cost. D) the marginal benefit is zero.

Q: Figure 7-1 Figure 7-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. Refer to Figure 7-1. At the efficient equilibrium A) economic surplus is maximized. B) economic surplus is minimized. C) economic surplus is zero. D) economic surplus is negative.

Q: Figure 7-1 Figure 7-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. Refer to Figure 7-1. The efficient equilibrium quantity is ________ thousand vaccinations. A) 100 B) 200 C) 300 D) >300

Q: Figure 7-1 Figure 7-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. Refer to Figure 7-1. The efficient equilibrium price is A) $30. B) $25. C) $20. D) <$20.

Q: Figure 7-1 Figure 7-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. Refer to Figure 7-1. The market equilibrium quantity is ________ thousand vaccinations. A) 100 B) 200 C) 300 D) >300

Q: Figure 7-1 Figure 7-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. Refer to Figure 7-1. The market equilibrium price is A) $30. B) $25. C) $20. D) <$20.

Q: Figure 7-1 Figure 7-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. Refer to Figure 7-1. Marginal social benefit is represented by which curve? A) D1 B) D2 C) Supply D) All of the above represent marginal social benefit.

Q: Figure 7-1 Figure 7-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. Refer to Figure 7-1. Marginal private benefit is represented by which curve? A) D1 B) D2 C) Supply D) All of the above represent marginal private benefit.

Q: Suppose a large firm allows its employees to choose whether to participate in its health insurance plan. The firm is trying to decide between two plans: Plan I has a low monthly premium but a high deductible, and Plan II has a high monthly premium but a low deductible. Under which plan is adverse selection likely to be a bigger problem? A) Plan I because it is likely to draw participants who expect high medical costs. This group expects to consume much health care services and therefore prefer low deductibles. B) Plan II because it is likely to draw participants who expect high medical costs. Healthy individuals who do not expect to consume much health care services will not be willing to pay the high premiums. C) Plan I because it is likely to draw the relatively healthy employees who do not expect to spend much on health care. Because the monthly premiums are low, the insurance company has to bear a bigger financial burden in the event of serious illnesses. D) Plan II because it is likely to draw employees who tend to over-consume health care services because of the low deductible. Insurance companies are likely to end up paying out more claims than the premiums they collect.

Q: If a doctor knows that an insurance company will pay for most of a patient's bill, the doctor 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.

Q: In the principal-agent relationship, the agent is A) the owner of a resource that has hired another party to act on his behalf. 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.

Q: What is the principal-agent problem? A) It is a problem 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) It is a problem caused by agents pursuing their own interests rather than the interests of the principals who hired them. C) It is a problem of the power system of boss and subordinate where the boss (principal) exerts influence over his subordinates (agents) using punishment or threat. D) It is a problem that exists when a person (principal) has more information about the task than the agent he hires to perform the task.

Q: In markets with asymmetric information A) moral hazard causes adverse selection which in turn causes asymmetric information. B) adverse selection causes moral hazard which in turn causes asymmetric information. C) asymmetric information causes moral hazard and then it causes adverse selection. D) asymmetric information causes adverse selection and then it causes moral hazard.

Q: Health insurance companies impose deductibles on policies and co-payments on claims A) to increase sales. B) to reduce moral hazard problems. C) to reduces sunk costs. D) to increase prices.

Q: If a fire insurance company requires firms buying fire insurance to install automatic sprinkler systems, the insurance company is trying to reduce A) the problem of adverse selection. B) the moral hazard problem. C) sunk costs. D) asymmetric information.

Q: Automobile insurance companies have a problem with people who buy insurance and then drive recklessly or take less care to avoid losses after being insured. In other words, the automobile insurance market is subject to A) asymmetric information. B) market signaling. C) moral hazard. D) adverse selection.

Q: What is moral hazard? A) It refers to the private, self-interested actions that people pursue, which when taken collectively leads to a loss in economic surplus. B) It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off. C) It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. D) It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction.

Q: Which of the following is not an advantage to an insurance company of insuring a large group of people for health insurance? A) The characteristics of a large group are likely to reflect those of the entire population. B) It is easier to accurately predict the number of claims for a group than for an individual. C) When all group members pay the premium, the problem of moral hazard is reduced. D) When all group members pay the premium, the problem of adverse selection is reduced.

Q: The cost of group health insurance is lower than if an individual buys a policy on his own because A) the problem of adverse selection is reduced. B) moral hazard costs of a group tend to move to a low average. C) it is easier for the company to deny claims from a large group. D) insuring a group eliminates the problem of buyers having more information than the seller.

Q: One reason why adverse selection problems arise in health insurance markets is that A) sick people are more likely to want health insurance than healthy people. B) because of advances in medical technology, people are living longer. These medical advances are costly and drive up the price of insurance for everyone. C) the average age of citizens of the United States has increased in recent years, and will continue to increase over the next 20 to 30 years. As older citizens retire, more and more of their medical bills will have to be paid by younger workers. D) fewer men and women are choosing medical careers because of the increase in the cost of malpractice insurance.

Q: Which of the following individuals is most likely to purchase a life insurance policy that pays out an annual income beginning at a certain age until the individual's death? A) Ian, who expects to have a short life expectancy because of an illness B) Bradley who has six young children C) Avril, a tax attorney who wants to avoid adverse selection D) Alma, who expects to live a long life, based on her family history

Q: When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of A) moral hazard. B) adverse selection. C) asymmetric information. D) economic irrationality.

Q: 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 eliminates ________ for both the insurer and the insured, and eliminates ________ for the issuer of the insurance policy. A) the principal-agent problem; moral hazard B) asymmetric information; adverse selection C) adverse selection; the principal-agent problem D) moral hazard; adverse selection

Q: Which of the following is not an advantage of risk pooling? A) By insuring large groups as opposed to individuals, health insurance providers reduce adverse selection. B) It gives very sick people in the group the same access to health care and to pay the same premiums as healthy individuals. C) It is easier for an insurance company to estimate the average number of claims likely to be filed under a group policy than it is to predict the number of claims likely to be filed under an individual policy. D) Individuals who are insured and therefore do not have to pay the full cost of health care services may be inclined to over-use those services.

Q: If a state requires all drivers to purchase auto insurance, insurance companies still face the problem of A) correctly pricing their insurance. B) sunk costs. C) adverse selection. D) excess demand for their insurance.

Q: If a buyer in an economic transaction has more information than the seller, the buyer benefits at the expense of the seller. This phenomenon is due to A) moral hazard. B) adverse selection. C) economically irrational behavior. D) gains from trade.

Q: Adverse selection occurs in the market for used cars because used car buyers A) have more information than used car sellers. B) have less information than used car sellers. C) have less incentive to maintain the value of their cars than new car buyers. D) tend to have more accidents than new car buyers.

Q: 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) Sellers of good used cars will drop out of the market. B) Sellers of good used cars will incur losses. C) Sellers of lemons will drop out of the market. D) Used cars will sell for $3,000.

Q: Consider a used car market in which half the cars are good and half are bad (lemons). Suppose the average price of a good car is $9,000 and the average price of a lemon is $3,000. If rational buyers are willing to pay $6,000 for a used car, then sellers will agree to sell mostly the lemons at this price. What is the term used to describe this situation? A) moral hazard B) adverse selection C) an efficient market D) economic irrationality

Q: Consider a used car market in which half the cars are good and half are bad (lemons). If buyers are rational, the prices being offered for used cars will result in A) an equal proportion of a good cars and lemons being sold in an efficient market. B) a larger proportion of good cars being sold and consequently, consumer surplus is increased. C) a larger proportion of lemons being sold and consequently, producer surplus is increased. D) an equal proportion of good cars and lemons being sold in an inefficient market.

Q: Consider a used car market in which half the cars are good and half are bad (lemons). A rational buyer in this market should A) offer to pay a price equal to the most she would pay for a good car. B) offer to pay a price equal to the most she would pay for a lemon. C) offer to pay a price somewhere between the price she would pay for a good car and the price she would pay for a lemon. D) save up and buy a new car.

Q: What is adverse selection? A) It refers to the private, self-interested actions people that people pursue, which when taken collectively leads to a loss in economic surplus. B) It refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off. C) It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. D) It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction.