Economics
504 and Health Care Management 504
Possible
Test Questions and Review
Final Exam
- 1. Consider the avoidance of accidents which occur in
medical relationships.
- a. Carefully define what is meant by the optimal level of
precaution to avoid such accidents. Use graphs and be
precise in your answer.
- b. What are the assumptions needed for a negligence
liability rule to result in optimal precaution? What is
the result if these assumptions are violated? Briefly
explain your answer.
- c. What are the assumptions needed for a strict liability
rule to result in optimal precaution? What is the result
if these assumptions are violated? Briefly explain your
answer.
- d. What is the economic argument favoring contractual
allocation of liability for medical accidents? Under what
circumstances would intervention by tort law be
justified? Briefly explain your answer.
- 2. Carefully define the following terms in a few
sentences.
- a. risk aversion
- b. expected utility
- c. supply of medical care
- d. economies of scale
- e. cost minimization
- f. deductible
- g. coinsurance
- h. industry technolgical efficiency
- i. target income model
- j. pure or fair premium (of health insurance)
- k. community rating
- l. moral hazard
- m. adverse selection
- n. negligence
- o. strict liability
- p. physicians services
- q. entry barriers
- r. HMO
- s. legal standard of care
- t. malpractice severity
- u. demand pull inflation
- 3. Give a brief answer to all of the following
questions.
- a. Suppose that a new hospital enters a market. How do
existing hospitals react to the new entrants presence?
List all assumptions that you must make to answer the
question and briefly explain your answer.
- b. Why does competition ensure that physician services
will be produced at minimum cost? Briefly explain your
answer.
- c. Suppose that you are a newly licensed M.D. with a
specialty in retinal surgery. How do you decide where you
should locate if your goal is to maximize your own
profits? What implications does this model have for the
quality and quantity of specialists in both rural and
urban areas? Briefly explain your answer.
- d. Why do some individuals buy health insurance and
others not? Use graphs to explain your answer. According
to your theory, which variables have an impact on the
probability that an individual will buy health insurance?
Briefly explain your answer.
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