HEALTH ECONOMICS PRACTICE EXAM TEST 2025/2026 QUESTIONS AND SOLUTIONS GRADED A+ TIP

HEALTH ECONOMICS PRACTICE EXAM TEST 2025/2026
QUESTIONS AND SOLUTIONS GRADED A+ TIP
✔✔According to the Grossman model, following bowed-out version of the production
possibilities frontier (PPF) is incorrect to represent the production possibilities of health
(H) and Z, everything non-health that contributes to an individual's utility. Which of the
statements below supports Grossman models arguments on the shape of the PPF
between H and Z. - ✔✔H and Z are not substitutes.
b.
If the individual's health is at minimum, that is when the individual is dead, there cannot
be any amount of Z.

✔✔According to the PPF proposed in the Grossman model, which of the statements
below are correct? (select all that apply). - ✔✔At point C, individual enjoys the
maximum amount of Z possible.
b.
Area between points A and C (not including points A and C) shows where the individual
does not face any opportunity cost in improving H.
c.
At point A, individual's health is at minimum. Therefore, the individual's productive time(
TP ) is zero.
d.
At point E, individual does not spend any time on the home good, Z.
Feedback

✔✔According to the PPF proposed in the Grossman model, an individual who values
both H and Z chooses -------. - ✔✔.
a point between C and E to maximize utility.

✔✔If, as a person consumes more and more of a good, each additional unit adds less
satisfaction than the previous unit consumed, we are seeing the workings of - ✔✔the
law of diminishing marginal utility.

✔✔If total utility increases at a decreasing rate as a consumer consumes more coffee,
then marginal utility must - ✔✔.
decrease.

✔✔What is an indifference curve? - ✔✔It is a curve that shows the combinations of
consumption bundles that give the consumer the same utility.

✔✔A consumer's budget constraint is - ✔✔the limited income that a consumer has to
spend on goods and services.

, ✔✔which of the following is not a characteristic of indifference curves? - ✔✔The closer
to the origin, the greater the utility level

✔✔Which of the following statements are true? (Select all that are true) - ✔✔Health
status earlier in life is a good predictor of wealth later in life.

n a study of babies born during the Dutch famine toward the end of World War II, those
exposed to the famine in utero were more likely than those not as exposed to be obese
as adults.
h.
According to the productive time hypothesis, SES differences are caused by disparities
in health.
i.
According to the direct income hypothesis, disparities in health exist because rich
people have more resources to devote to health

✔✔Answer the question below based on your answers in question 4 and the information
provided in question 3.
This could be an example of ________________ hypothesis. - ✔✔direct income

✔✔According to the extended version of the Grossman model, an individual values
health (H) and home goods (Z) in every single period of life. This extended version of
the model can be written as,
U = U(H0,Z0, H1,Z1,..........., HΩΩ-1,ZΩΩ-1,HΩΩ,ZΩΩ)
According to the Grossman model, ΩΩ is . - ✔✔chosen by the individual.

✔✔According to the extended version of the Grossman model, overall lifetime utility of
an individual can be written as,
U = U(H0,Z0)+𝛿δU(H1,Z1)+𝛿δ2U(H2,Z2)+.................+ 𝛿δΩΩU(HΩΩ,ZΩΩ) =∑ΩΩt=0
𝛿δtU(Ht,Zt)).
In the above equation, 𝛿δ is the individual's . - ✔✔discount factor, and it is always
between 0 and 1.

✔✔According to the extended version of the Grossman model, overall lifetime utility of
an individual can be written as,
U = U(H0,Z0)+𝛿δU(H1,Z1)+𝛿δ2U(H2,Z2)+.................+ 𝛿δΩΩU(HΩΩ,ZΩΩ)
When 𝛿δ is low, near 0, we could say that the individual - ✔✔discounts utility from future
periods heavily. In other words, the individual strongly prefers current consumption of H
and Z for the lifetime utility.

✔✔Characteristics of capital are: (select all that apply) - ✔✔.
store value from investments in previous periods
c.
depreciate in value over time