Indicate whether the statement is true or false, and justify your answer.The full economic cost ofmedical school includes mainly tuition, room, and board for the school.

Price discrimination requires the ability to distinguish customers who are the most price sensitive and the ability to prevent arbitrage (resale of your products by customers who buy at low prices). What attributes of healthcare products make these tasks easy to do?

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Moral hazard creates tradeoffs that complicate insurance design and policy choices. Imagine a linear demand curve for outpatient clinician visits, and assume at $100 per visit there would be 50,000 annual visits to a particular urban clinic. A politician would like to be popular, and proposes making clinic visits free (zero price). You know, as the city's staff health economist, that if this were to happen, the number of visits would rise to 75,000. Your job is to testify before the city council, and answer at least two questions: how much social welfare loss from moral hazard would occur; and how much tax money must be raised to finance clinic services if visits were made completely free? a. $2,500,000; $15,000,000 b. $5,000,000; $30,000,000 c. $1,250,000; $7,500,000 d. $3,750,000; $22,500,000

Assume that the government decides to subsidize the price of healthcare. The subsidy will be given directly to individual consumers of medical-related goods and services. Who is likely to benefit more from this subsidy: Providers (doctors, nurses, hospital staff, etc....) or Patients? Explain your answer using a supply and demand diagram.

What effects would joining a MCO have on your clinic regarding staffing, patient volume, and financial stability?What policies and procedures should be used by the MCOs to reduce costs for their clientele?

Demand for medical services is price inelastic (Absolute value of price elasticity of demand is less than 1 and greater than zero). Medical services are different from most other goods and services in that the person who determines the demand (the patient) is not the person who makes the payment (payment is made by the insurance company). How does this affect the price elasticity of demand for medical services (increase it or decrease it)? You may assume that this question only refers to people who have health insurance. Ignore co-payments and deductibles and any other out-of-pocket expenses. Please give an explanation.

Which option is not true on the price of health care?     In general it does not affect ones health      It might have some impact on high risk individuals     It affects healthy people     It has some impact on low-income individuals

Suppose a company has invented and patented a new effective drug to treat hay fever. The marginal cost of producing the drug is: MC = $4 .  Without being covered in any insurance plan, the market demand is as follows: Qd = 800 -40P   a. Suppose the drug is covered by a public health insurance plan with a co-insurance rate of 25% and everyone is eligible. What is the market demand under this insurance policy? What price should the company charge and what is the equilibrium quantity?  a. Suppose now the public health insurer introduces the payment limit of $7.5 per unit of the drug; that is, the co-insurance rate of 25% applies if P less than or equal 10 (P<= 10), but the insurance only pays $7.5 per unit if P is greater than 10 P>10). Derive the new market demand.  Under this new market demand, what price should the firm charge? Justify your answer.

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