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HEALTH ECONOMICS AND POLICY, 8TH EDITION - ALL
CHAPTERS QUESTIONS UPDATED ACTUAL EXAM LATEST 2026
– 2027 VERSION SOLVED QUESTIONS & ANSWERS
Health Economics and Policy, 8th Edition - All Chapters Exam - 250 Questions with
Rationales
QUESTIONS 1-50: Economic Foundations & Healthcare Spending
1. Which of the following is the best definition of opportunity cost?
A) The total cost of production for a healthcare service
B) Foregone opportunities or the value of the next best alternative not chosen
C) The difference between production costs and resource costs
D) The dollar cost of medical equipment
Answer: B
Rationale: Opportunity cost measures the value based on the alternative not chosen
when making a decision. It is a fundamental concept in economics that applies to
healthcare decisions, reflecting what must be given up to obtain something else. The
dollar cost of equipment is just one component, not the complete definition .
2. The opportunity cost of investing in a new lithotripter (a machine that pulverizes
kidney stones with sound waves) is:
A) Defined by the dollar cost of the equipment
B) The same for every healthcare provider
C) Measured by the difference between expected revenues and the invoice cost of the
machine
D) Defined by the next best use of the money invested in the equipment
Answer: D
Rationale: The opportunity cost of investing in a capital asset is defined by the next best
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use of the money invested. This is a critical concept in health economics, emphasizing
that resource allocation decisions should consider what is foregone. The dollar cost
alone does not capture the full opportunity cost .
3. According to Adam Smith's terminology, the "invisible hand" refers to:
A) Government control of the market
B) Market forces working through the price mechanism
C) The money supply that keeps the economy working smoothly
D) The role of innovation in maintaining growth
Answer: B
Rationale: Adam Smith's "invisible hand" refers to market forces working through the
price mechanism to allocate resources efficiently. In healthcare, this concept helps
explain how markets can theoretically achieve equilibrium outcomes and efficient
resource allocation through transparent pricing and competition .
4. According to recent public opinion polls, what percentage of Americans are
satisfied with the quality of the medical care they receive?
A) 15 percent
B) 40 percent
C) 65 percent
D) 90 percent
Answer: D
Rationale: According to public opinion polls, approximately 90 percent of Americans
are satisfied with the quality of the medical care they receive. This high satisfaction rate
contrasts with widespread dissatisfaction with the healthcare system's costs and
access issues .
5. Charging higher prices for one category of patients to provide free or subsidized
care to another group is called:
A) Price discrimination
B) Cost-shifting
C) Categorical costing
D) Creative accounting
Answer: B
Rationale: Cost-shifting occurs when higher prices are charged to one group of patients
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to cover the costs of providing free or subsidized care to another group. This practice is
common in healthcare where providers charge commercial insurers more to offset
losses from Medicare and Medicaid .
6. According to economic theory, what is the optimal percentage of GDP to be
spent on medical care?
A) 6 percent
B) 8 percent
C) 10 percent
D) 12 percent
E) There is no widely-accepted way to determine the optimal percentage
Answer: E
Rationale: There is no widely-accepted way to determine the optimal percentage of
GDP to be spent on medical care. The optimal level depends on society's preferences,
trade-offs, and willingness to allocate resources to health versus other goods.
Economic theory suggests that the optimal level occurs where marginal benefit equals
marginal cost, but this is difficult to measure empirically .
7. Which of the following are considered to be sources of waste in healthcare
spending? (Select all that apply)
A) Excessive administration costs
B) Fraud and abuse
C) High prices
D) Substantial low-income population
Answer: A, B, C
Rationale: Excessive administration costs, fraud and abuse, and high prices are
considered sources of waste in healthcare spending. A substantial low-income
population is not inherently a source of waste but rather a demographic factor that may
affect healthcare needs and access .
8. What phrase best describes medical care spending in the United States?
A) Total spending of more than $2 trillion represents 17 percent of GDP
B) Total spending of more than $1 trillion represents 14.8 percent of GDP
C) Total spending of less than $1 trillion represents less than 13 percent of GDP
D) Total spending is rising at double-digit rates
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Answer: B
Rationale: Medical care spending in the United States has historically been
characterized by total spending exceeding $1 trillion, representing approximately 14.8
percent of GDP and almost $6,000 per capita. This pattern of high and rising healthcare
expenditures has been a persistent feature of the U.S. healthcare system .
9. The 1974 federal legislation that exempted employers from certain state laws
governing health insurance was:
A) COBRA
B) ERISA
C) CON
D) HIPAA
E) SCHIP
Answer: B
Rationale: The Employee Retirement Income Security Act (ERISA) of 1974 exempted
employers from certain state laws governing health insurance. This legislation allows
self-insured employers to avoid state-mandated benefits and regulations, significantly
affecting the health insurance market structure .
10. Which of the following statements is based on positive analysis?
A) Individuals without health insurance have less access to physicians' services than
those who have health insurance
B) The high cost of health insurance places U.S. firms at a competitive disadvantage
C) Employers should be required to provide health insurance for all full-time workers
D) Both A and B
Answer: D
Rationale: Positive analysis involves objective, fact-based statements that can be
tested and verified. Statements about access to care and competitive disadvantage are
positive statements that can be empirically examined. The statement that employers
should be required to provide insurance is normative, reflecting value judgments .
11. Economists use the term "marginal" to describe costs and benefits that are:
A) Minimal and hardly worth noting
B) Incremental and thus relevant to decision making
C) Noteworthy but not the most important
D) Whose importance can be minimized through hard work
HEALTH ECONOMICS AND POLICY, 8TH EDITION - ALL
CHAPTERS QUESTIONS UPDATED ACTUAL EXAM LATEST 2026
– 2027 VERSION SOLVED QUESTIONS & ANSWERS
Health Economics and Policy, 8th Edition - All Chapters Exam - 250 Questions with
Rationales
QUESTIONS 1-50: Economic Foundations & Healthcare Spending
1. Which of the following is the best definition of opportunity cost?
A) The total cost of production for a healthcare service
B) Foregone opportunities or the value of the next best alternative not chosen
C) The difference between production costs and resource costs
D) The dollar cost of medical equipment
Answer: B
Rationale: Opportunity cost measures the value based on the alternative not chosen
when making a decision. It is a fundamental concept in economics that applies to
healthcare decisions, reflecting what must be given up to obtain something else. The
dollar cost of equipment is just one component, not the complete definition .
2. The opportunity cost of investing in a new lithotripter (a machine that pulverizes
kidney stones with sound waves) is:
A) Defined by the dollar cost of the equipment
B) The same for every healthcare provider
C) Measured by the difference between expected revenues and the invoice cost of the
machine
D) Defined by the next best use of the money invested in the equipment
Answer: D
Rationale: The opportunity cost of investing in a capital asset is defined by the next best
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use of the money invested. This is a critical concept in health economics, emphasizing
that resource allocation decisions should consider what is foregone. The dollar cost
alone does not capture the full opportunity cost .
3. According to Adam Smith's terminology, the "invisible hand" refers to:
A) Government control of the market
B) Market forces working through the price mechanism
C) The money supply that keeps the economy working smoothly
D) The role of innovation in maintaining growth
Answer: B
Rationale: Adam Smith's "invisible hand" refers to market forces working through the
price mechanism to allocate resources efficiently. In healthcare, this concept helps
explain how markets can theoretically achieve equilibrium outcomes and efficient
resource allocation through transparent pricing and competition .
4. According to recent public opinion polls, what percentage of Americans are
satisfied with the quality of the medical care they receive?
A) 15 percent
B) 40 percent
C) 65 percent
D) 90 percent
Answer: D
Rationale: According to public opinion polls, approximately 90 percent of Americans
are satisfied with the quality of the medical care they receive. This high satisfaction rate
contrasts with widespread dissatisfaction with the healthcare system's costs and
access issues .
5. Charging higher prices for one category of patients to provide free or subsidized
care to another group is called:
A) Price discrimination
B) Cost-shifting
C) Categorical costing
D) Creative accounting
Answer: B
Rationale: Cost-shifting occurs when higher prices are charged to one group of patients
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to cover the costs of providing free or subsidized care to another group. This practice is
common in healthcare where providers charge commercial insurers more to offset
losses from Medicare and Medicaid .
6. According to economic theory, what is the optimal percentage of GDP to be
spent on medical care?
A) 6 percent
B) 8 percent
C) 10 percent
D) 12 percent
E) There is no widely-accepted way to determine the optimal percentage
Answer: E
Rationale: There is no widely-accepted way to determine the optimal percentage of
GDP to be spent on medical care. The optimal level depends on society's preferences,
trade-offs, and willingness to allocate resources to health versus other goods.
Economic theory suggests that the optimal level occurs where marginal benefit equals
marginal cost, but this is difficult to measure empirically .
7. Which of the following are considered to be sources of waste in healthcare
spending? (Select all that apply)
A) Excessive administration costs
B) Fraud and abuse
C) High prices
D) Substantial low-income population
Answer: A, B, C
Rationale: Excessive administration costs, fraud and abuse, and high prices are
considered sources of waste in healthcare spending. A substantial low-income
population is not inherently a source of waste but rather a demographic factor that may
affect healthcare needs and access .
8. What phrase best describes medical care spending in the United States?
A) Total spending of more than $2 trillion represents 17 percent of GDP
B) Total spending of more than $1 trillion represents 14.8 percent of GDP
C) Total spending of less than $1 trillion represents less than 13 percent of GDP
D) Total spending is rising at double-digit rates
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Answer: B
Rationale: Medical care spending in the United States has historically been
characterized by total spending exceeding $1 trillion, representing approximately 14.8
percent of GDP and almost $6,000 per capita. This pattern of high and rising healthcare
expenditures has been a persistent feature of the U.S. healthcare system .
9. The 1974 federal legislation that exempted employers from certain state laws
governing health insurance was:
A) COBRA
B) ERISA
C) CON
D) HIPAA
E) SCHIP
Answer: B
Rationale: The Employee Retirement Income Security Act (ERISA) of 1974 exempted
employers from certain state laws governing health insurance. This legislation allows
self-insured employers to avoid state-mandated benefits and regulations, significantly
affecting the health insurance market structure .
10. Which of the following statements is based on positive analysis?
A) Individuals without health insurance have less access to physicians' services than
those who have health insurance
B) The high cost of health insurance places U.S. firms at a competitive disadvantage
C) Employers should be required to provide health insurance for all full-time workers
D) Both A and B
Answer: D
Rationale: Positive analysis involves objective, fact-based statements that can be
tested and verified. Statements about access to care and competitive disadvantage are
positive statements that can be empirically examined. The statement that employers
should be required to provide insurance is normative, reflecting value judgments .
11. Economists use the term "marginal" to describe costs and benefits that are:
A) Minimal and hardly worth noting
B) Incremental and thus relevant to decision making
C) Noteworthy but not the most important
D) Whose importance can be minimized through hard work
