Health Economics and Policy, 8th Edition Solution Manual by
x x x x x x x x
James W. Henderson.
x x x
1 Opportunity cost is a measure of x x x x x
a. foregone opportunities. x
b. value based on the alternative not chosen. x x x x x x
c. value in terms of the cost of production. x x x x x x x
d. the difference between production cost and resource cost.
x x x x x x x
e. both a and b. x x x
2. The opportunity cost of investing in a new lithotripter (a machine that pulverizes kidney stones
x x x x x x x x x x x x x x
with sound waves) is
x x x x
a. defined by the dollar cost of the equipment. x x x x x x x
b. the same for every health care provider. x x x x x x
c. measured by the difference between the expected revenues from selling the services of x x x x x x x x x x x x
the lithotripter and the invoice cost of the machine.
x x x x x x x x x
d. defined by the next best use of the money invested in the equipment. x x x x x x x x x x x x
e. impossible to calculate. x x
3. The “invisible hand” using Adam Smith’s terminology refers to
x x x x x x x x
a. government control of the market. x x x x
b. market forces working through the price mechanism. x x x x x x
c. the money supply that serves to keep the economy working smoothly.
x x x x x x x x x x
d. the role of innovation in maintaining a steady rate of growth.
x x x x x x x x x x
e. “behind-the-scenes” policy making to influence how markets allocate x x x x x x x
scarce resources. x x
4. According to recent public opinion polls, what percentage of Americans are satisfied with the
x x x x x x x x x x x x x
quality of the medical care they receive?
x x x x x x x
a. 15 percent. x
b. 40 percent. x
c. 65 percent. x
d. 70 percent. x
e. 90 percent. x
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or
x x x x x x x x x x x x x x x x
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on
x x x x x x x x x x x x x x x x x x x
xa password-protected website for classroom use.
x x x x x
,5. Charging higher prices for one category of patients in order to provide free or subsidized care to
x x x x x x x x x x x x x x x x
another group is called
x x x x
a. price discrimination. x
b. cost-shifting.
c. categorical costing. x
d. reprehensible and unethical. x x
e. creative accounting. x
6. According to economic theory what is the optimal percentage of GDP to be spent on medical
x x x x x x x x x x x x x x x
care?
x
a. 6 percent. x
b. 8 percent. x
c. 10 percent. x
d. 12 percent. x
e. There is no widely-accepted way to determine the optimal percentage. x x x x x x x x x
7. What phrase best describes medical care spending in the United States in 1998?
x x x x x x x x x x x x
a. Total spending of more than $2 trillion represents 17 percent of GDP and approximately
x x x x x x x x x x x x x
$8,000 per capita. x x
b. Total spending of more than $1 trillion represents 14.8 percent of GDP and almost $6,000 per
x x x x x x x x x x x x x x x
capita. x
c. Total spending of less than $1 trillion represents less than 13 percent of GDP and almost
x x x x x x x x x x x x x x x
$3,000 per capita. x x
d. Total spending is rising at double-digit rates and spending is soaring to over $5,000 per
x x x x x x x x x x x x x x
capita. x
e. Total spending is under control and represents a shrinking percentage of GDP.
x x x x x x x x x x x
8. The 1974 federal legislation that exempted employers from certain state laws governing health
x x x x x x x x x x x x
insurance was
x x
a. COBRA
b. ERISA
c. CON
d. HIPAA
e. SCHIP
9. Which of the following statements is based on positive analysis?
x x x x x x x x x
a. Individuals without health insurance have less access to physicians’ services x x x x x x x x x
than those who have health insurance.
x x x x x x
b. The high cost of health insurance places U.S. firms at a competitive disadvantage with
x x x x x x x x x x x x x
their foreign competitors. x x x
c. Employers should be required to provide health insurance for all full-time workers and x x x x x x x x x x x x
their dependents. x x
d. none of the above. x x x
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or
x x x x x x x x x x x x x x x x
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on
x x x x x x x x x x x x x x x x x x x
xa password-protected website for classroom use.
x x x x x
, e. Both a and b. x x x
10. Economists use the term “marginal” to describe costs and benefits
x x x x x x x x x
a. that are minimal and hardly worth noting. x x x x x x
b. that are incremental and thus relevant to decision making.
x x x x x x x x
c. that are noteworthy but not the most important. x x x x x x x
d. whose importance can be minimized through hard work. x x x x x x x
e. none of the above. x x x
11. Self insurance refers to: the practice of setting aside funds to pay for medical care expenses
x x x x x x x x x x x x x x x
instead of paying premiums to an insurance company. Approximately,
x x x x of all employees x x x x x x x x
who participate in group insurance plans work for firms that self-insure.
x x x x x x x x x x x
a. starting one’s own insurance company x x x x
b. buying insurance from a not for profit entity x x x x x x x
c. setting aside fund to pay for medical care expenses instead of buying insurance
x x x x x x x x x x x x
d. none of these x x
e. both a and b x x x
12. Which of the following is not a characteristic that makes medical care different from other
x x x x x x x x x x x x x x
commodities?
x
a. Demand for medical care is irregular. x x x x x
b. Sellers have more information than buyers. x x x x x
c. Third-party payers abound. x x
d. For-profit providers play a major role in delivering medical care. x x x x x x x x x
e. The transaction itself if filled with uncertainty.
x x x x x x
Structured Discussion: x
1. Resolved: The United States system of health care delivery is in a state of crisis.
x x x x x x x x x x x x x x
2. Resolved: The recent slowing of health care spending as a share of gross domestic
x x x x x x x x x x x x x
product will continue. In other words, the relative size of the health care sector has
x x x x x x x x x x x x x x
x reached a natural limit. x x x
Appendix 1A: The Medical Care Price Index
x x x x x x
This appendix demonstrates the use of price indexes to measure price changes. Caution is
x x x x x x x x x x x x x
x advised in interpreting changes in fixed-weight indexes, such as the Consumer Price Index (CPI)
x x x x x x x x x x x x x
x and the Medical Care Price Index (MCPI), as a measure of inflation. Problems in using the MCPI
x x x x x x x x x x x x x x x x
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or
x x x x x x x x x x x x x x x x
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on
x x x x x x x x x x x x x x x x x x x
xa password-protected website for classroom use.
x x x x x
, to measure medical inflation are discussed, including what to measure, how to account for quality
x x x x x x x x x x x x x x
improvements, and how to incorporate new products into the index.
x x x x x x x x x x
Appendix Objectives x
1. Summarize the issues involved in measuring price changes with price indexes. x x x x x x x x x x
2. Describe the use of the medical care price index in measuring changes in medical care
x x x x x x x x x x x x x x
x prices.
3. Specify alternatives for measuring price changes. x x x x x
Appendix Outline x
a. Measuring price changes with index numbers x x x x x
b. Medical care price index x x x
c. Problems with using a fixed-weight index as a measure of inflation
x x x x x x x x x x
d. Measuring inputs instead of outcomes x x x x
e. Measuring quality changes x x
f. Accounting for new products x x x
g. Other problems x
h. Alternative methods to measure medical care inflation x x x x x x
i. Summary and conclusions x x
Chapter 2: Using Economics to Study Health Care Issues x x x x x x x x
This chapter introduces the basic economics model of supply and demand and examines its use in
x x x x x x x x x x x x x x x
x the study of health care issues. A discussion of the principles of optimizing behavior sets the
x x x x x x x x x x x x x x x
x stage for the development of the model of demand and supply. A discussion of the theory of the
x x x x x x x x x x x x x x x x x
x firm follows, contrasting perfect and imperfect competition. Supply- and demand-side
x x x x x x x x x
x imperfections are also discussed. x x x
Chapter Outline x
a. The relevance of economics in health care
x x x x x x
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or
x x x x x x x x x x x x x x x x
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on
x x x x x x x x x x x x x x x x x x x
xa password-protected website for classroom use.
x x x x x
x x x x x x x x
James W. Henderson.
x x x
1 Opportunity cost is a measure of x x x x x
a. foregone opportunities. x
b. value based on the alternative not chosen. x x x x x x
c. value in terms of the cost of production. x x x x x x x
d. the difference between production cost and resource cost.
x x x x x x x
e. both a and b. x x x
2. The opportunity cost of investing in a new lithotripter (a machine that pulverizes kidney stones
x x x x x x x x x x x x x x
with sound waves) is
x x x x
a. defined by the dollar cost of the equipment. x x x x x x x
b. the same for every health care provider. x x x x x x
c. measured by the difference between the expected revenues from selling the services of x x x x x x x x x x x x
the lithotripter and the invoice cost of the machine.
x x x x x x x x x
d. defined by the next best use of the money invested in the equipment. x x x x x x x x x x x x
e. impossible to calculate. x x
3. The “invisible hand” using Adam Smith’s terminology refers to
x x x x x x x x
a. government control of the market. x x x x
b. market forces working through the price mechanism. x x x x x x
c. the money supply that serves to keep the economy working smoothly.
x x x x x x x x x x
d. the role of innovation in maintaining a steady rate of growth.
x x x x x x x x x x
e. “behind-the-scenes” policy making to influence how markets allocate x x x x x x x
scarce resources. x x
4. According to recent public opinion polls, what percentage of Americans are satisfied with the
x x x x x x x x x x x x x
quality of the medical care they receive?
x x x x x x x
a. 15 percent. x
b. 40 percent. x
c. 65 percent. x
d. 70 percent. x
e. 90 percent. x
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or
x x x x x x x x x x x x x x x x
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on
x x x x x x x x x x x x x x x x x x x
xa password-protected website for classroom use.
x x x x x
,5. Charging higher prices for one category of patients in order to provide free or subsidized care to
x x x x x x x x x x x x x x x x
another group is called
x x x x
a. price discrimination. x
b. cost-shifting.
c. categorical costing. x
d. reprehensible and unethical. x x
e. creative accounting. x
6. According to economic theory what is the optimal percentage of GDP to be spent on medical
x x x x x x x x x x x x x x x
care?
x
a. 6 percent. x
b. 8 percent. x
c. 10 percent. x
d. 12 percent. x
e. There is no widely-accepted way to determine the optimal percentage. x x x x x x x x x
7. What phrase best describes medical care spending in the United States in 1998?
x x x x x x x x x x x x
a. Total spending of more than $2 trillion represents 17 percent of GDP and approximately
x x x x x x x x x x x x x
$8,000 per capita. x x
b. Total spending of more than $1 trillion represents 14.8 percent of GDP and almost $6,000 per
x x x x x x x x x x x x x x x
capita. x
c. Total spending of less than $1 trillion represents less than 13 percent of GDP and almost
x x x x x x x x x x x x x x x
$3,000 per capita. x x
d. Total spending is rising at double-digit rates and spending is soaring to over $5,000 per
x x x x x x x x x x x x x x
capita. x
e. Total spending is under control and represents a shrinking percentage of GDP.
x x x x x x x x x x x
8. The 1974 federal legislation that exempted employers from certain state laws governing health
x x x x x x x x x x x x
insurance was
x x
a. COBRA
b. ERISA
c. CON
d. HIPAA
e. SCHIP
9. Which of the following statements is based on positive analysis?
x x x x x x x x x
a. Individuals without health insurance have less access to physicians’ services x x x x x x x x x
than those who have health insurance.
x x x x x x
b. The high cost of health insurance places U.S. firms at a competitive disadvantage with
x x x x x x x x x x x x x
their foreign competitors. x x x
c. Employers should be required to provide health insurance for all full-time workers and x x x x x x x x x x x x
their dependents. x x
d. none of the above. x x x
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or
x x x x x x x x x x x x x x x x
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on
x x x x x x x x x x x x x x x x x x x
xa password-protected website for classroom use.
x x x x x
, e. Both a and b. x x x
10. Economists use the term “marginal” to describe costs and benefits
x x x x x x x x x
a. that are minimal and hardly worth noting. x x x x x x
b. that are incremental and thus relevant to decision making.
x x x x x x x x
c. that are noteworthy but not the most important. x x x x x x x
d. whose importance can be minimized through hard work. x x x x x x x
e. none of the above. x x x
11. Self insurance refers to: the practice of setting aside funds to pay for medical care expenses
x x x x x x x x x x x x x x x
instead of paying premiums to an insurance company. Approximately,
x x x x of all employees x x x x x x x x
who participate in group insurance plans work for firms that self-insure.
x x x x x x x x x x x
a. starting one’s own insurance company x x x x
b. buying insurance from a not for profit entity x x x x x x x
c. setting aside fund to pay for medical care expenses instead of buying insurance
x x x x x x x x x x x x
d. none of these x x
e. both a and b x x x
12. Which of the following is not a characteristic that makes medical care different from other
x x x x x x x x x x x x x x
commodities?
x
a. Demand for medical care is irregular. x x x x x
b. Sellers have more information than buyers. x x x x x
c. Third-party payers abound. x x
d. For-profit providers play a major role in delivering medical care. x x x x x x x x x
e. The transaction itself if filled with uncertainty.
x x x x x x
Structured Discussion: x
1. Resolved: The United States system of health care delivery is in a state of crisis.
x x x x x x x x x x x x x x
2. Resolved: The recent slowing of health care spending as a share of gross domestic
x x x x x x x x x x x x x
product will continue. In other words, the relative size of the health care sector has
x x x x x x x x x x x x x x
x reached a natural limit. x x x
Appendix 1A: The Medical Care Price Index
x x x x x x
This appendix demonstrates the use of price indexes to measure price changes. Caution is
x x x x x x x x x x x x x
x advised in interpreting changes in fixed-weight indexes, such as the Consumer Price Index (CPI)
x x x x x x x x x x x x x
x and the Medical Care Price Index (MCPI), as a measure of inflation. Problems in using the MCPI
x x x x x x x x x x x x x x x x
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or
x x x x x x x x x x x x x x x x
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on
x x x x x x x x x x x x x x x x x x x
xa password-protected website for classroom use.
x x x x x
, to measure medical inflation are discussed, including what to measure, how to account for quality
x x x x x x x x x x x x x x
improvements, and how to incorporate new products into the index.
x x x x x x x x x x
Appendix Objectives x
1. Summarize the issues involved in measuring price changes with price indexes. x x x x x x x x x x
2. Describe the use of the medical care price index in measuring changes in medical care
x x x x x x x x x x x x x x
x prices.
3. Specify alternatives for measuring price changes. x x x x x
Appendix Outline x
a. Measuring price changes with index numbers x x x x x
b. Medical care price index x x x
c. Problems with using a fixed-weight index as a measure of inflation
x x x x x x x x x x
d. Measuring inputs instead of outcomes x x x x
e. Measuring quality changes x x
f. Accounting for new products x x x
g. Other problems x
h. Alternative methods to measure medical care inflation x x x x x x
i. Summary and conclusions x x
Chapter 2: Using Economics to Study Health Care Issues x x x x x x x x
This chapter introduces the basic economics model of supply and demand and examines its use in
x x x x x x x x x x x x x x x
x the study of health care issues. A discussion of the principles of optimizing behavior sets the
x x x x x x x x x x x x x x x
x stage for the development of the model of demand and supply. A discussion of the theory of the
x x x x x x x x x x x x x x x x x
x firm follows, contrasting perfect and imperfect competition. Supply- and demand-side
x x x x x x x x x
x imperfections are also discussed. x x x
Chapter Outline x
a. The relevance of economics in health care
x x x x x x
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or
x x x x x x x x x x x x x x x x
in part, except for use as permitted in a license distributed with a certain product or service or otherwise on
x x x x x x x x x x x x x x x x x x x
xa password-protected website for classroom use.
x x x x x
