LSUS MHA 710 ECONOMICS EXAM 190 ACTUAL
QUESTIONS AND VERIFIED ANSWERS WITH RATIONALE
ALREADY GRADED A+ NEW!!!!!!!!!!!!!!!!!!!!
Based on the comprehensive set of 190 multiple-choice questions provided, the
**LSUS MHA 710 Health Economics Exam** is a graduate-level assessment
covering microeconomic principles applied to healthcare markets, health
insurance, and health policy. The exam tests knowledge of supply and
demand, elasticity, opportunity cost, market failures (asymmetric
information, moral hazard, adverse selection), the Grossman model of health
capital, and the economics of healthcare financing including Medicare,
Medicaid, and employer-sponsored insurance. Questions address economic
evaluation, cost-effectiveness analysis, physician behavior, hospital markets,
pharmaceutical economics, and healthcare reform. Each question includes
detailed rationales explaining microeconomic concepts and their application
to health systems and health policy decisions .
1. Which of the following is the best definition of economics?
a) The study of how to make money in the stock market
b) The study of how society manages its scarce resources
c) The study of how governments allocate unlimited resources
d) The study of how to eliminate scarcity
Answer: b) The study of how society manages its scarce resources
Rationale: Economics is the study of how society manages its scarce resources
because scarcity forces choices. Resources are limited; wants are unlimited .
2. The principle that "people face trade-offs" means that:
a) There is no such thing as a free lunch
b) To get one thing, you must give up another
c) Efficiency and equity are the only two goals
d) People always make rational decisions
Answer: b) To get one thing, you must give up another
Rationale: Trade-offs exist because resources are scarce. Choosing more of one
thing means choosing less of another .
,3. The term "opportunity cost" refers to:
a) The monetary cost of a good
b) The value of the next best alternative given up when making a choice
c) The total cost of production
d) The price paid for a good
Answer: b) The value of the next best alternative given up when making a choice
Rationale: Opportunity cost includes both explicit costs and the value of the
forgone alternative. It is what you give up to get something .
4. Economists use the term "marginal changes" to describe:
a) Large, significant adjustments
b) Small, incremental adjustments to an existing plan
c) Changes that affect only the poor
d) Changes that have no effect on decision-making
Answer: b) Small, incremental adjustments to an existing plan
Rationale: Marginal changes are small adjustments to an existing plan of action.
Rational decision-makers compare marginal benefits with marginal costs .
5. The law of supply states that, other things equal:
a) Price and quantity supplied are positively related
b) Price and quantity supplied are inversely related
c) Supply increases when price increases
d) Supply decreases when price decreases
Answer: a) Price and quantity supplied are positively related
Rationale: The law of supply: quantity supplied rises as price rises (positive
relationship) .
6. At the equilibrium price:
a) Quantity demanded equals quantity supplied
b) There is a shortage
c) There is a surplus
d) Price is zero
Answer: a) Quantity demanded equals quantity supplied
Rationale: Equilibrium occurs where quantity demanded equals quantity supplied;
there is no tendency for price to change .
7. The price elasticity of demand measures:
a) The responsiveness of quantity demanded to a change in price
b) The responsiveness of quantity supplied to a change in price
c) The responsiveness of demand to a change in income
,d) The responsiveness of demand to a change in the price of a related good
Answer: a) The responsiveness of quantity demanded to a change in price
Rationale: Price elasticity of demand = (% change in quantity demanded) ÷ (%
change in price) .
8. Demand for health care is generally considered to be:
a) Perfectly elasticb) Relatively inelastic (less responsive to price changes)
c) Perfectly inelastic
d) Unit elastic
Answer: b) Relatively inelastic (less responsive to price changes)
Rationale: Health care demand is relatively inelastic because many services are
necessities with few substitutes .
9. If the price elasticity of demand for a health service is 0.3, a 10% increase in
price will cause quantity demanded to:
a) Increase by 3%
b) Decrease by 3%
c) Increase by 30%
d) Decrease by 30%
Answer: b) Decrease by 3%
Rationale: Ed = 0.3 = (%ΔQd) / 10%; %ΔQd = 3% (decrease, since price and
quantity move opposite). Demand is inelastic .
10. The demand for emergency room services is likely to be:
a) More elastic than demand for elective surgery
b) Less elastic (more inelastic) than demand for elective surgery
c) Perfectly elastic
d) The same elasticity as all other health services
Answer: b) Less elastic (more inelastic) than demand for elective surgery
Rationale: Emergency services are often non-discretionary with few substitutes,
making demand more inelastic .
11. Which of the following would shift the demand curve for health care to the
right?
a) A decrease in household income
b) An aging population (increased prevalence of chronic disease)
c) A decrease in the price of health care
d) A decrease in the number of physicians
Answer: b) An aging population (increased prevalence of chronic disease)
, Rationale: An aging population increases the overall demand for health care
services (rightward shift). Changes in price cause movement along the curve, not a
shift .
12. Moral hazard in health insurance refers to:
a) Patients lying about their health status
b) Increased utilization of health care services because insurance reduces the out-
of-pocket price
c) Insurance companies denying coverage for pre-existing conditions
d) Physicians prescribing unnecessary tests
Answer: b) Increased utilization of health care services because insurance reduces
the out-of-pocket price
Rationale: Moral hazard occurs when insurance reduces the marginal cost of care,
leading to increased utilization beyond what would be chosen without insurance .
13. Adverse selection in health insurance markets occurs when:
a) Insurers select only healthy individuals
b) Sick individuals are more likely to purchase insurance than healthy individuals,
leading to higher premiums
c) Patients choose to see multiple physicians
d) Physicians select which patients to treat
Answer: b) Sick individuals are more likely to purchase insurance than healthy
individuals, leading to higher premiums
Rationale: Adverse selection arises from asymmetric information: sicker
individuals have higher demand for insurance, which can drive up premiums and
potentially cause market failure .
14. A "normal good" is one for which demand increases when:
a) Price increases
b) Price decreases
c) Income increases
d) Income decreases
Answer: c) Income increases
Rationale: Normal goods have positive income elasticity; demand rises as income
rises. Most health care goods are normal goods .
15. A "luxury good" has an income elasticity of demand that is:
a) Less than 0
b) Between 0 and 1
c) Greater than 1
QUESTIONS AND VERIFIED ANSWERS WITH RATIONALE
ALREADY GRADED A+ NEW!!!!!!!!!!!!!!!!!!!!
Based on the comprehensive set of 190 multiple-choice questions provided, the
**LSUS MHA 710 Health Economics Exam** is a graduate-level assessment
covering microeconomic principles applied to healthcare markets, health
insurance, and health policy. The exam tests knowledge of supply and
demand, elasticity, opportunity cost, market failures (asymmetric
information, moral hazard, adverse selection), the Grossman model of health
capital, and the economics of healthcare financing including Medicare,
Medicaid, and employer-sponsored insurance. Questions address economic
evaluation, cost-effectiveness analysis, physician behavior, hospital markets,
pharmaceutical economics, and healthcare reform. Each question includes
detailed rationales explaining microeconomic concepts and their application
to health systems and health policy decisions .
1. Which of the following is the best definition of economics?
a) The study of how to make money in the stock market
b) The study of how society manages its scarce resources
c) The study of how governments allocate unlimited resources
d) The study of how to eliminate scarcity
Answer: b) The study of how society manages its scarce resources
Rationale: Economics is the study of how society manages its scarce resources
because scarcity forces choices. Resources are limited; wants are unlimited .
2. The principle that "people face trade-offs" means that:
a) There is no such thing as a free lunch
b) To get one thing, you must give up another
c) Efficiency and equity are the only two goals
d) People always make rational decisions
Answer: b) To get one thing, you must give up another
Rationale: Trade-offs exist because resources are scarce. Choosing more of one
thing means choosing less of another .
,3. The term "opportunity cost" refers to:
a) The monetary cost of a good
b) The value of the next best alternative given up when making a choice
c) The total cost of production
d) The price paid for a good
Answer: b) The value of the next best alternative given up when making a choice
Rationale: Opportunity cost includes both explicit costs and the value of the
forgone alternative. It is what you give up to get something .
4. Economists use the term "marginal changes" to describe:
a) Large, significant adjustments
b) Small, incremental adjustments to an existing plan
c) Changes that affect only the poor
d) Changes that have no effect on decision-making
Answer: b) Small, incremental adjustments to an existing plan
Rationale: Marginal changes are small adjustments to an existing plan of action.
Rational decision-makers compare marginal benefits with marginal costs .
5. The law of supply states that, other things equal:
a) Price and quantity supplied are positively related
b) Price and quantity supplied are inversely related
c) Supply increases when price increases
d) Supply decreases when price decreases
Answer: a) Price and quantity supplied are positively related
Rationale: The law of supply: quantity supplied rises as price rises (positive
relationship) .
6. At the equilibrium price:
a) Quantity demanded equals quantity supplied
b) There is a shortage
c) There is a surplus
d) Price is zero
Answer: a) Quantity demanded equals quantity supplied
Rationale: Equilibrium occurs where quantity demanded equals quantity supplied;
there is no tendency for price to change .
7. The price elasticity of demand measures:
a) The responsiveness of quantity demanded to a change in price
b) The responsiveness of quantity supplied to a change in price
c) The responsiveness of demand to a change in income
,d) The responsiveness of demand to a change in the price of a related good
Answer: a) The responsiveness of quantity demanded to a change in price
Rationale: Price elasticity of demand = (% change in quantity demanded) ÷ (%
change in price) .
8. Demand for health care is generally considered to be:
a) Perfectly elasticb) Relatively inelastic (less responsive to price changes)
c) Perfectly inelastic
d) Unit elastic
Answer: b) Relatively inelastic (less responsive to price changes)
Rationale: Health care demand is relatively inelastic because many services are
necessities with few substitutes .
9. If the price elasticity of demand for a health service is 0.3, a 10% increase in
price will cause quantity demanded to:
a) Increase by 3%
b) Decrease by 3%
c) Increase by 30%
d) Decrease by 30%
Answer: b) Decrease by 3%
Rationale: Ed = 0.3 = (%ΔQd) / 10%; %ΔQd = 3% (decrease, since price and
quantity move opposite). Demand is inelastic .
10. The demand for emergency room services is likely to be:
a) More elastic than demand for elective surgery
b) Less elastic (more inelastic) than demand for elective surgery
c) Perfectly elastic
d) The same elasticity as all other health services
Answer: b) Less elastic (more inelastic) than demand for elective surgery
Rationale: Emergency services are often non-discretionary with few substitutes,
making demand more inelastic .
11. Which of the following would shift the demand curve for health care to the
right?
a) A decrease in household income
b) An aging population (increased prevalence of chronic disease)
c) A decrease in the price of health care
d) A decrease in the number of physicians
Answer: b) An aging population (increased prevalence of chronic disease)
, Rationale: An aging population increases the overall demand for health care
services (rightward shift). Changes in price cause movement along the curve, not a
shift .
12. Moral hazard in health insurance refers to:
a) Patients lying about their health status
b) Increased utilization of health care services because insurance reduces the out-
of-pocket price
c) Insurance companies denying coverage for pre-existing conditions
d) Physicians prescribing unnecessary tests
Answer: b) Increased utilization of health care services because insurance reduces
the out-of-pocket price
Rationale: Moral hazard occurs when insurance reduces the marginal cost of care,
leading to increased utilization beyond what would be chosen without insurance .
13. Adverse selection in health insurance markets occurs when:
a) Insurers select only healthy individuals
b) Sick individuals are more likely to purchase insurance than healthy individuals,
leading to higher premiums
c) Patients choose to see multiple physicians
d) Physicians select which patients to treat
Answer: b) Sick individuals are more likely to purchase insurance than healthy
individuals, leading to higher premiums
Rationale: Adverse selection arises from asymmetric information: sicker
individuals have higher demand for insurance, which can drive up premiums and
potentially cause market failure .
14. A "normal good" is one for which demand increases when:
a) Price increases
b) Price decreases
c) Income increases
d) Income decreases
Answer: c) Income increases
Rationale: Normal goods have positive income elasticity; demand rises as income
rises. Most health care goods are normal goods .
15. A "luxury good" has an income elasticity of demand that is:
a) Less than 0
b) Between 0 and 1
c) Greater than 1
