HSPM EXAM 4 EXAM QUESTIONS
AND CORRECT ANSWERS
ALREADY PASSED
The quantity demanded of medical care may be increasing due to - Answer-An aging
population
A richer population
More insurance coverage
Increasing quality of medical care
WHAT MIGHT EXPLAIN RISING TOTAL HEALTH EXPENDITURES? - Answer-1.
Prices have increased
2. Quantity demanded has increased
3. Technological innovation& technological overuse
Technological Innovation - Answer-Laparoscopic surgery
Beta Blockers
Statins
Laser Eye Surgery
MRI
CT
Rising Health Care Costs - Answer-If the increase in health care expenditures is driven
primarily by increases in price
-Health is getting more expensive to produce [increased resource costs, increased
market power, etc.]
-Consumers will either have to cut back on health care or spend more money to stay
healthy
Rising Healthcare Costs - Answer-If the increase in health care expenditures is driven
primarily by increases in quantity demanded
-Maybe people simply consuming more medical care [as incomes rise, population
ages]
-Extra spending on health care worth it to consumers [technological improvements →
higher marginal health benefit]
-Spending on unnecessary care due to moral hazard
, Health Care Costs Rising - Answer-If the increase in health care expenditures is driven
primarily by increases in quantity demanded, then this trend does not necessarily imply
that people are worse off as a result
Measuring MEDICAL INFLATION with a PRICE INDEX - Answer-Medical inflation
refers to the price change of medical goods and services over time
-A medical care consumer price index (CPI) tracks the changing prices of medical
goods & services
-The medical care CPI is an estimate of medical inflation
-Captures only prices changes (and not quantity changes)
Measuring MEDICAL INFLATION with a PRICE INDEX - Answer--A price index is a
measure of welfare
-All else equal, rising prices reduce consumer welfare, because consumers cannot
achieve as much utility with the same income as they could before
-An ideal price index would answer the question: "How much more does it cost this
year to achieve the same utility I achieved last year?"
Measuring MEDICAL INFLATION with a PRICE INDEX - Answer-A price index is a
measure of welfare
-All else equal, rising prices reduce consumer welfare, because consumers cannot
achieve as much utility with the same income as they could before
-A Laspeyres price index [like the CPI] answers the question: "How much more does it
cost this year to buy the same things I bought last year?"
Calculating the Medical Care CPI - Answer-Create a bundle of goods and services
-The bundle should approximate consumers' typical consumption of goods and services
demanded
COMPARE the total of cost of the bundle this year to the total cost of the bundle last
year
Interpreting Medical Care CPI - Answer-The ICPI is not a perfect measure of how price
changes affect utility, but it is easy to calculate and often gives a good approximation of
the welfare effects of price changes
Interpreting Med. Care CPI - Answer-Potential Problems with the ICPI
-Becomes a poor approximation of welfare if the goods included in the bundle change
subtly over time
-New medical technologies → original bundle no longer reflects actual purchases
-In the case of medical care, the mix of goods and services purchased by consumers is
dramatically different from what it was even ten or twenty years ago
What is Inflation? - Answer--Inflation is the rate of increase in prices for goods and
services
-There are a number of different measures of inflation in use. The most frequently
quoted is the Consumer Price Index (CPI)
AND CORRECT ANSWERS
ALREADY PASSED
The quantity demanded of medical care may be increasing due to - Answer-An aging
population
A richer population
More insurance coverage
Increasing quality of medical care
WHAT MIGHT EXPLAIN RISING TOTAL HEALTH EXPENDITURES? - Answer-1.
Prices have increased
2. Quantity demanded has increased
3. Technological innovation& technological overuse
Technological Innovation - Answer-Laparoscopic surgery
Beta Blockers
Statins
Laser Eye Surgery
MRI
CT
Rising Health Care Costs - Answer-If the increase in health care expenditures is driven
primarily by increases in price
-Health is getting more expensive to produce [increased resource costs, increased
market power, etc.]
-Consumers will either have to cut back on health care or spend more money to stay
healthy
Rising Healthcare Costs - Answer-If the increase in health care expenditures is driven
primarily by increases in quantity demanded
-Maybe people simply consuming more medical care [as incomes rise, population
ages]
-Extra spending on health care worth it to consumers [technological improvements →
higher marginal health benefit]
-Spending on unnecessary care due to moral hazard
, Health Care Costs Rising - Answer-If the increase in health care expenditures is driven
primarily by increases in quantity demanded, then this trend does not necessarily imply
that people are worse off as a result
Measuring MEDICAL INFLATION with a PRICE INDEX - Answer-Medical inflation
refers to the price change of medical goods and services over time
-A medical care consumer price index (CPI) tracks the changing prices of medical
goods & services
-The medical care CPI is an estimate of medical inflation
-Captures only prices changes (and not quantity changes)
Measuring MEDICAL INFLATION with a PRICE INDEX - Answer--A price index is a
measure of welfare
-All else equal, rising prices reduce consumer welfare, because consumers cannot
achieve as much utility with the same income as they could before
-An ideal price index would answer the question: "How much more does it cost this
year to achieve the same utility I achieved last year?"
Measuring MEDICAL INFLATION with a PRICE INDEX - Answer-A price index is a
measure of welfare
-All else equal, rising prices reduce consumer welfare, because consumers cannot
achieve as much utility with the same income as they could before
-A Laspeyres price index [like the CPI] answers the question: "How much more does it
cost this year to buy the same things I bought last year?"
Calculating the Medical Care CPI - Answer-Create a bundle of goods and services
-The bundle should approximate consumers' typical consumption of goods and services
demanded
COMPARE the total of cost of the bundle this year to the total cost of the bundle last
year
Interpreting Medical Care CPI - Answer-The ICPI is not a perfect measure of how price
changes affect utility, but it is easy to calculate and often gives a good approximation of
the welfare effects of price changes
Interpreting Med. Care CPI - Answer-Potential Problems with the ICPI
-Becomes a poor approximation of welfare if the goods included in the bundle change
subtly over time
-New medical technologies → original bundle no longer reflects actual purchases
-In the case of medical care, the mix of goods and services purchased by consumers is
dramatically different from what it was even ten or twenty years ago
What is Inflation? - Answer--Inflation is the rate of increase in prices for goods and
services
-There are a number of different measures of inflation in use. The most frequently
quoted is the Consumer Price Index (CPI)
