MHA710 Final Exam Actual Exam Style V1
| MHA 710 Healthcare Economics |
Louisiana State University in Shreveport
1. Which economic concept explains why consumers may seek more medical care when they
have insurance coverage compared to when they do not?
A. Moral Hazard
B. Adverse Selection
C. Asymmetric Information
D. Supplier-Induced Demand
Answer: A
Rationale: Moral hazard refers to the tendency of individuals to change their behavior
because they are insulated from the full cost of a service. In healthcare, this manifests as
increased consumption of services when insurance reduces the out-of-pocket price. This
behavior results in a deadweight loss to society because the marginal cost of care exceeds
the marginal benefit to the consumer.
2. In the context of health insurance, what does ‘Adverse Selection’ primarily describe?
A. The process where insurers cherry-pick healthy patients.
B. The tendency of high-risk individuals to seek insurance more than low-risk individuals.
C. A situation where physicians induce demand for their services.
,D. The shift from fee-for-service to capitation payments.
Answer: B
Rationale: Adverse selection occurs when there is asymmetric information between the
buyer and the insurer. Those who expect higher healthcare costs are more likely to
purchase comprehensive insurance, while healthy individuals might opt out. This
imbalance can lead to rising premiums and potential market failure if the risk pool
becomes too skewed toward high-cost users.
3. Which of the following best defines the ‘Opportunity Cost’ of building a new hospital wing?
A. The total monetary cost of construction and equipment.
B. The interest paid on the loans taken to finance the project.
C. The value of the next best alternative use of those resources.
D. The expected revenue generated by the new wing over ten years.
Answer: C
Rationale: Opportunity cost is a fundamental principle in economics that measures the
value of what must be sacrificed to pursue a specific action. For a hospital, this might mean
the community health programs or outpatient facilities that could have been funded
instead. It is essential for decision-makers to consider these trade-offs to ensure allocative
efficiency in healthcare spending.
, 4. According to the Grossman Model of health demand, health is viewed as which of the
following?
A. A pure consumption good only.
B. A random variable influenced only by genetics.
C. A capital good that depreciates over time.
D. An externality produced by the government.
Answer: C
Rationale: The Grossman Model treats health as a durable capital stock that yields ‘healthy
time’ as an output. Individuals invest in their health through diet, exercise, and medical
care to slow the rate of depreciation. This model emphasizes that health is both a
consumption good that provides utility and an investment good that increases productive
time.
5. What is the primary characteristic of a ‘Public Good’ in the healthcare sector, such as
medical research?
A. It is provided only by the government.
B. It is rivalrous and excludable.
C. It is always free to the consumer at the point of service.
D. It is non-rivalrous and non-excludable.
Answer: D
| MHA 710 Healthcare Economics |
Louisiana State University in Shreveport
1. Which economic concept explains why consumers may seek more medical care when they
have insurance coverage compared to when they do not?
A. Moral Hazard
B. Adverse Selection
C. Asymmetric Information
D. Supplier-Induced Demand
Answer: A
Rationale: Moral hazard refers to the tendency of individuals to change their behavior
because they are insulated from the full cost of a service. In healthcare, this manifests as
increased consumption of services when insurance reduces the out-of-pocket price. This
behavior results in a deadweight loss to society because the marginal cost of care exceeds
the marginal benefit to the consumer.
2. In the context of health insurance, what does ‘Adverse Selection’ primarily describe?
A. The process where insurers cherry-pick healthy patients.
B. The tendency of high-risk individuals to seek insurance more than low-risk individuals.
C. A situation where physicians induce demand for their services.
,D. The shift from fee-for-service to capitation payments.
Answer: B
Rationale: Adverse selection occurs when there is asymmetric information between the
buyer and the insurer. Those who expect higher healthcare costs are more likely to
purchase comprehensive insurance, while healthy individuals might opt out. This
imbalance can lead to rising premiums and potential market failure if the risk pool
becomes too skewed toward high-cost users.
3. Which of the following best defines the ‘Opportunity Cost’ of building a new hospital wing?
A. The total monetary cost of construction and equipment.
B. The interest paid on the loans taken to finance the project.
C. The value of the next best alternative use of those resources.
D. The expected revenue generated by the new wing over ten years.
Answer: C
Rationale: Opportunity cost is a fundamental principle in economics that measures the
value of what must be sacrificed to pursue a specific action. For a hospital, this might mean
the community health programs or outpatient facilities that could have been funded
instead. It is essential for decision-makers to consider these trade-offs to ensure allocative
efficiency in healthcare spending.
, 4. According to the Grossman Model of health demand, health is viewed as which of the
following?
A. A pure consumption good only.
B. A random variable influenced only by genetics.
C. A capital good that depreciates over time.
D. An externality produced by the government.
Answer: C
Rationale: The Grossman Model treats health as a durable capital stock that yields ‘healthy
time’ as an output. Individuals invest in their health through diet, exercise, and medical
care to slow the rate of depreciation. This model emphasizes that health is both a
consumption good that provides utility and an investment good that increases productive
time.
5. What is the primary characteristic of a ‘Public Good’ in the healthcare sector, such as
medical research?
A. It is provided only by the government.
B. It is rivalrous and excludable.
C. It is always free to the consumer at the point of service.
D. It is non-rivalrous and non-excludable.
Answer: D
