MHA710 Final Exam Actual Exam Style V3
| MHA 710 Healthcare Economics |
Louisiana State University in Shreveport
1. Which economic concept explains why individuals with a higher risk of illness are more
likely to purchase comprehensive health insurance?
A. Moral Hazard
B. Supplier-Induced Demand
C. Risk Aversion
D. Adverse Selection
Answer: D
Rationale: Adverse selection occurs when there is asymmetric information between the
insured and the insurer. High-risk individuals possess more information about their health
status and are more likely to seek coverage. This phenomenon can lead to an imbalance in
the risk pool and higher premiums for all participants.
2. What is the primary difference between ‘ex-ante’ and ‘ex-post’ moral hazard in healthcare?
A. Ex-ante refers to behavior before an illness, while ex-post refers to behavior after an
illness.
B. Ex-ante refers to hospital costs, while ex-post refers to outpatient costs.
C. Ex-ante involves insurance companies, while ex-post involves government regulation.
,D. There is no functional difference between the two concepts in economic theory.
Answer: A
Rationale: Ex-ante moral hazard involves changes in behavior that increase the risk of an
event occurring, such as eating poorly or smoking. Ex-post moral hazard refers to the
increased utilization of medical services once an individual is insured and an illness has
occurred. Both concepts illustrate how insurance coverage can distort individual incentives
and resource allocation.
3. According to the RAND Health Insurance Experiment, how does the price elasticity of
demand for healthcare typically behave?
A. It is perfectly elastic.
B. It is perfectly inelastic.
C. It is generally inelastic but not zero.
D. It is highly elastic for all types of care.
Answer: C
Rationale: The RAND experiment demonstrated that as the out-of-pocket price for
healthcare increases, the quantity demanded decreases. However, the demand is relatively
inelastic, meaning the percentage change in quantity is smaller than the percentage change
in price. This suggests that while patients are price-sensitive, healthcare is still viewed as a
necessity.
, 4. In the Grossman Model of health demand, health is treated as what type of good?
A. A purely consumable good only
B. A public good provided by the state
C. A capital good
D. An inferior good
Answer: C
Rationale: The Grossman Model posits that health is a durable capital good that yields
‘healthy time’ as an output. Individuals inherit an initial stock of health that depreciates
over time but can be increased through investment. This framework allows economists to
analyze how age, education, and wages influence health-related decisions.
5. What does ‘Supplier-Induced Demand’ (SID) suggest about physician behavior?
A. Physicians can use their information advantage to encourage more care than is medically
necessary.
B. Physicians only provide the care that patients explicitly request.
C. Physicians always act as perfect agents for their patients’ financial interests.
D. Supply and demand are always in perfect equilibrium in the medical market.
Answer: A
Rationale: Supplier-induced demand occurs when physicians abuse the information
asymmetry existing between them and their patients. By recommending extra tests or
| MHA 710 Healthcare Economics |
Louisiana State University in Shreveport
1. Which economic concept explains why individuals with a higher risk of illness are more
likely to purchase comprehensive health insurance?
A. Moral Hazard
B. Supplier-Induced Demand
C. Risk Aversion
D. Adverse Selection
Answer: D
Rationale: Adverse selection occurs when there is asymmetric information between the
insured and the insurer. High-risk individuals possess more information about their health
status and are more likely to seek coverage. This phenomenon can lead to an imbalance in
the risk pool and higher premiums for all participants.
2. What is the primary difference between ‘ex-ante’ and ‘ex-post’ moral hazard in healthcare?
A. Ex-ante refers to behavior before an illness, while ex-post refers to behavior after an
illness.
B. Ex-ante refers to hospital costs, while ex-post refers to outpatient costs.
C. Ex-ante involves insurance companies, while ex-post involves government regulation.
,D. There is no functional difference between the two concepts in economic theory.
Answer: A
Rationale: Ex-ante moral hazard involves changes in behavior that increase the risk of an
event occurring, such as eating poorly or smoking. Ex-post moral hazard refers to the
increased utilization of medical services once an individual is insured and an illness has
occurred. Both concepts illustrate how insurance coverage can distort individual incentives
and resource allocation.
3. According to the RAND Health Insurance Experiment, how does the price elasticity of
demand for healthcare typically behave?
A. It is perfectly elastic.
B. It is perfectly inelastic.
C. It is generally inelastic but not zero.
D. It is highly elastic for all types of care.
Answer: C
Rationale: The RAND experiment demonstrated that as the out-of-pocket price for
healthcare increases, the quantity demanded decreases. However, the demand is relatively
inelastic, meaning the percentage change in quantity is smaller than the percentage change
in price. This suggests that while patients are price-sensitive, healthcare is still viewed as a
necessity.
, 4. In the Grossman Model of health demand, health is treated as what type of good?
A. A purely consumable good only
B. A public good provided by the state
C. A capital good
D. An inferior good
Answer: C
Rationale: The Grossman Model posits that health is a durable capital good that yields
‘healthy time’ as an output. Individuals inherit an initial stock of health that depreciates
over time but can be increased through investment. This framework allows economists to
analyze how age, education, and wages influence health-related decisions.
5. What does ‘Supplier-Induced Demand’ (SID) suggest about physician behavior?
A. Physicians can use their information advantage to encourage more care than is medically
necessary.
B. Physicians only provide the care that patients explicitly request.
C. Physicians always act as perfect agents for their patients’ financial interests.
D. Supply and demand are always in perfect equilibrium in the medical market.
Answer: A
Rationale: Supplier-induced demand occurs when physicians abuse the information
asymmetry existing between them and their patients. By recommending extra tests or
