G R A D U A T E H E A LT H C A R E E C O N O M I C S • M H A C O U R S E W O R K P R A C T I C E
MHA 710 — EXAM 1
HEALTHCARE ECONOMICS – COMPREHENSIVE PRACTICE – 2026/2027 EDITION
100 Questions 9 Content Sections Answers & Rationales 5 Scenario Blocks
I M P O RTA N T N O T I C E
This is an original practice examination covering the standard graduate healthcare
economics canon: scarcity and opportunity cost, demand and elasticity, insurance
(adverse selection, moral hazard, risk pooling), information asymmetry and agency,
production and cost, market structure, the economic role of government, and the
economics of not-for-profit organizations. It is not the actual examination for any specific
course, is not affiliated with or endorsed by Louisiana State University Shreveport (LSUS)
or any other institution, and contains no proprietary course materials. It is intended for
self-study and preparation only.
Empirical figures cited (elasticities, experiment findings) reflect widely taught estimates
from classic studies (e.g., the RAND Health Insurance Experiment, Akerlof's lemons model,
Grossman's health-capital model). Confirm current readings and professor emphasis with
your own syllabus before exam day.
HOW TO USE THIS EXAM
Answer all 100 questions in one sitting (about 90–120 minutes). Correct answers are
marked [CORRECT] with a rationale addressing the distractors — cover the marked line
to self-test. Section 9 contains five scenario blocks with linked items applying multiple
concepts to one situation, mirroring applied exam questions.
Page 1 of 32
, MHA 710 Exam 1 —Healthcare Economics Practice (2026/2027 Edition)
CONTENTS
1. Sec 1 Fundamentals: Scarcity, Opportunity Cost, Rational Decisions (15)
2. Sec 2 Healthcare Demand & Supply, Elasticity, Equilibrium (15)
3. Sec 3 Health Insurance & Risk: Adverse Selection, Moral Hazard, Pooling (15)
4. Sec 4 Information Asymmetry & Agency; Supplier-Induced Demand (10)
5. Sec 5 Production & Cost Functions; Economies of Scale/Scope (10)
6. Sec 6 Market Structures & Competition in Healthcare (10)
7. Sec 7 Role of Government: Failures, Regulation, Policy (10)
8. Sec 8 Not-for-Profit Organizations in Healthcare (5)
9. Sec 9 Integrated Scenario-Based Questions (10)
Page 2 of 32
, MHA 710 Exam 1 —Healthcare Economics Practice (2026/2027 Edition)
Section 1: Fundamentals of Economics & Healthcare – Definition,
Scarcity, Opportunity Cost, Rational Decision-Making (15
questions)
Q1: How is economics best characterized in the context of healthcare decision making?
A. A map for decision making — analyzing how societies allocate scarce resources among
competing uses [CORRECT]
B. A method for guaranteeing unlimited medical care
C. A purely mathematical discipline with no application to management
D. A synonym for accounting and bookkeeping
Correct Answer: A
Rationale: Economics is the study of allocating scarce resources among competing ends — a decision-
making map; it promises no abundance, is applied far beyond mathematics, and differs from accounting
in asking what ought to be done next.
Q2: What condition makes economic analysis necessary in the first place?
A. Unlimited wants and unlimited resources
B. Scarcity — unlimited wants confronting limited resources [CORRECT]
C. The existence of money
D. Government regulation
Correct Answer: B
Rationale: Scarcity — wants exceeding available resources — forces choices and trade-offs, which is the
reason economics exists; if resources were unlimited, no allocation problem would arise regardless of
money or regulation.
Q3: Which list states the three fundamental economic questions every society must answer?
A. When, where, and why
B. Whether, which, and whose
C. WHAT shall we produce (or not), HOW shall we produce it, and WHO gets what is produced
[CORRECT]
D. Buy, sell, and hold
Correct Answer: C
Rationale: All economies must decide what goods/services to produce, the production method, and
distribution of output; the other lists are not the standard triad.
Q4: What does "opportunity cost" mean?
A. The accounting price paid for an input
B. The value of the next best alternative forgone when a choice is made [CORRECT]
C. The total of all historical expenditures
D. A penalty paid for irrational decisions
Correct Answer: B
Rationale: Opportunity cost is what must be given up — the next best alternative sacrificed — whenever
resources are committed; it is broader than the invoice price and unrelated to penalties.
Page 3 of 32
, MHA 710 Exam 1 —Healthcare Economics Practice (2026/2027 Edition)
Q5: A hospital board commits its last available loan capacity to a new ambulatory surgery center rather
than to a much-requested hospice wing. What is the opportunity cost of its decision?
A. The loan's interest payments
B. The hospice wing — the value of the next best alternative forgone [CORRECT]
C. Zero, since the board chose deliberately
D. The ASC's future revenues
Correct Answer: B
Rationale: Opportunity cost equals the forgone alternative — the hospice wing; interest is an accounting
expense, deliberate choice does not erase trade-offs, and future revenues are benefits, not costs.
Q6: What does rational decision making mean in economic analysis?
A. Deciding emotionally but justifying numerically
B. Choosing the course of action that offers the best outcomes (highest net benefit), given one's
objectives and constraints [CORRECT]
C. Always choosing the cheapest option regardless of benefit
D. Deferring every decision until all information is perfect
Correct Answer: B
Rationale: Rational choice means picking the alternative with the greatest expected net benefit subject
to constraints; it is neither minimal cost always (benefits matter) nor paralysis waiting for perfect
information.
Q7: A health system spent $4 million developing an EHR module now made obsolete by a superior
vendor platform. Continuing internal development would cost $2 million more; switching costs $1
million. What should a rational manager do?
A. Continue the project because $4 million was already invested
B. Switch — sunk costs are irrelevant; compare the remaining $2 million continuation cost against
the $1 million switching cost [CORRECT]
C. Split the difference and do both
D. Stop all information technology spending
Correct Answer: B
Rationale: The $4 million is a sunk cost — unrecoverable and irrelevant to the choice; the forward-
looking comparison ($2M continue vs $1M switch) favors switching, and "sunk-cost" reasoning explains
the other options' error.
Q8: Marginal analysis supports which decision rule?
A. Take an action if its marginal benefit exceeds its marginal cost [CORRECT]
B. Take an action only if its total benefit exceeds total cost by the largest historical margin
C. Never take marginal actions
D. Equate average cost with average revenue always
Correct Answer: A
Rationale: Rational decisions occur at the margin — expand an activity while marginal benefit exceeds
marginal cost and stop when they equalize; totals, averages, and "never" rules misapply the concept.
Page 4 of 32
MHA 710 — EXAM 1
HEALTHCARE ECONOMICS – COMPREHENSIVE PRACTICE – 2026/2027 EDITION
100 Questions 9 Content Sections Answers & Rationales 5 Scenario Blocks
I M P O RTA N T N O T I C E
This is an original practice examination covering the standard graduate healthcare
economics canon: scarcity and opportunity cost, demand and elasticity, insurance
(adverse selection, moral hazard, risk pooling), information asymmetry and agency,
production and cost, market structure, the economic role of government, and the
economics of not-for-profit organizations. It is not the actual examination for any specific
course, is not affiliated with or endorsed by Louisiana State University Shreveport (LSUS)
or any other institution, and contains no proprietary course materials. It is intended for
self-study and preparation only.
Empirical figures cited (elasticities, experiment findings) reflect widely taught estimates
from classic studies (e.g., the RAND Health Insurance Experiment, Akerlof's lemons model,
Grossman's health-capital model). Confirm current readings and professor emphasis with
your own syllabus before exam day.
HOW TO USE THIS EXAM
Answer all 100 questions in one sitting (about 90–120 minutes). Correct answers are
marked [CORRECT] with a rationale addressing the distractors — cover the marked line
to self-test. Section 9 contains five scenario blocks with linked items applying multiple
concepts to one situation, mirroring applied exam questions.
Page 1 of 32
, MHA 710 Exam 1 —Healthcare Economics Practice (2026/2027 Edition)
CONTENTS
1. Sec 1 Fundamentals: Scarcity, Opportunity Cost, Rational Decisions (15)
2. Sec 2 Healthcare Demand & Supply, Elasticity, Equilibrium (15)
3. Sec 3 Health Insurance & Risk: Adverse Selection, Moral Hazard, Pooling (15)
4. Sec 4 Information Asymmetry & Agency; Supplier-Induced Demand (10)
5. Sec 5 Production & Cost Functions; Economies of Scale/Scope (10)
6. Sec 6 Market Structures & Competition in Healthcare (10)
7. Sec 7 Role of Government: Failures, Regulation, Policy (10)
8. Sec 8 Not-for-Profit Organizations in Healthcare (5)
9. Sec 9 Integrated Scenario-Based Questions (10)
Page 2 of 32
, MHA 710 Exam 1 —Healthcare Economics Practice (2026/2027 Edition)
Section 1: Fundamentals of Economics & Healthcare – Definition,
Scarcity, Opportunity Cost, Rational Decision-Making (15
questions)
Q1: How is economics best characterized in the context of healthcare decision making?
A. A map for decision making — analyzing how societies allocate scarce resources among
competing uses [CORRECT]
B. A method for guaranteeing unlimited medical care
C. A purely mathematical discipline with no application to management
D. A synonym for accounting and bookkeeping
Correct Answer: A
Rationale: Economics is the study of allocating scarce resources among competing ends — a decision-
making map; it promises no abundance, is applied far beyond mathematics, and differs from accounting
in asking what ought to be done next.
Q2: What condition makes economic analysis necessary in the first place?
A. Unlimited wants and unlimited resources
B. Scarcity — unlimited wants confronting limited resources [CORRECT]
C. The existence of money
D. Government regulation
Correct Answer: B
Rationale: Scarcity — wants exceeding available resources — forces choices and trade-offs, which is the
reason economics exists; if resources were unlimited, no allocation problem would arise regardless of
money or regulation.
Q3: Which list states the three fundamental economic questions every society must answer?
A. When, where, and why
B. Whether, which, and whose
C. WHAT shall we produce (or not), HOW shall we produce it, and WHO gets what is produced
[CORRECT]
D. Buy, sell, and hold
Correct Answer: C
Rationale: All economies must decide what goods/services to produce, the production method, and
distribution of output; the other lists are not the standard triad.
Q4: What does "opportunity cost" mean?
A. The accounting price paid for an input
B. The value of the next best alternative forgone when a choice is made [CORRECT]
C. The total of all historical expenditures
D. A penalty paid for irrational decisions
Correct Answer: B
Rationale: Opportunity cost is what must be given up — the next best alternative sacrificed — whenever
resources are committed; it is broader than the invoice price and unrelated to penalties.
Page 3 of 32
, MHA 710 Exam 1 —Healthcare Economics Practice (2026/2027 Edition)
Q5: A hospital board commits its last available loan capacity to a new ambulatory surgery center rather
than to a much-requested hospice wing. What is the opportunity cost of its decision?
A. The loan's interest payments
B. The hospice wing — the value of the next best alternative forgone [CORRECT]
C. Zero, since the board chose deliberately
D. The ASC's future revenues
Correct Answer: B
Rationale: Opportunity cost equals the forgone alternative — the hospice wing; interest is an accounting
expense, deliberate choice does not erase trade-offs, and future revenues are benefits, not costs.
Q6: What does rational decision making mean in economic analysis?
A. Deciding emotionally but justifying numerically
B. Choosing the course of action that offers the best outcomes (highest net benefit), given one's
objectives and constraints [CORRECT]
C. Always choosing the cheapest option regardless of benefit
D. Deferring every decision until all information is perfect
Correct Answer: B
Rationale: Rational choice means picking the alternative with the greatest expected net benefit subject
to constraints; it is neither minimal cost always (benefits matter) nor paralysis waiting for perfect
information.
Q7: A health system spent $4 million developing an EHR module now made obsolete by a superior
vendor platform. Continuing internal development would cost $2 million more; switching costs $1
million. What should a rational manager do?
A. Continue the project because $4 million was already invested
B. Switch — sunk costs are irrelevant; compare the remaining $2 million continuation cost against
the $1 million switching cost [CORRECT]
C. Split the difference and do both
D. Stop all information technology spending
Correct Answer: B
Rationale: The $4 million is a sunk cost — unrecoverable and irrelevant to the choice; the forward-
looking comparison ($2M continue vs $1M switch) favors switching, and "sunk-cost" reasoning explains
the other options' error.
Q8: Marginal analysis supports which decision rule?
A. Take an action if its marginal benefit exceeds its marginal cost [CORRECT]
B. Take an action only if its total benefit exceeds total cost by the largest historical margin
C. Never take marginal actions
D. Equate average cost with average revenue always
Correct Answer: A
Rationale: Rational decisions occur at the margin — expand an activity while marginal benefit exceeds
marginal cost and stop when they equalize; totals, averages, and "never" rules misapply the concept.
Page 4 of 32
