Health Economics
14th Edition
ISBN: 9781137029966
Author: Jay Bhattacharya
Publisher: SPRINGER NATURE CUSTOMER SERVICE
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Chapter 6, Problem 7E
To determine
Check whether the statement is true or false.
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interest). At what age is the rate of disease development the
highest?
Source: Adapted from P. Coleman et al., “Endemic Stability―A Veterinary
Idea Applied to Public Health," The Lancet 357 (2001): 1284–86.
19. If C(x) is the cost of producing x units of a commodity, then
the average cost per unit is c(x) = C(x)/x. The marginal
cost is the rate of change of the cost with respect to the
number of items produced, that is, the derivative C'(x).
(a) Show that if the average cost is a minimum, then the
marginal cost equals the average cost.
(b) If C(x) = 16,000 + 200x + 4x³/2, in dollars, find
(i) the cost, average cost, and marginal cost at a produc-
tion level of 1000 units; (ii) the production level that
will minimize the average cost; and (iii) the minimum
average cost.
20. If R(x) is the revenue that a company receives when it sells
x units of a product, then the marginal revenue function is
the derivative R'(x). The profit function is
In some countries, such as Canada and UK, direct-to-consumer (DTC) advertising for pharmaceutical products is illegal or tightly controlled. Which of the following is NOT a reason why DTC is tightly controlled?
Question 7 options:
Asymmetric information: consumers are not in a good position to determine if a drug is what they need.
DTC makes patients aware of new remedies.
DTC can put a strain on doctor-patient relationship when patients demand some drugs that are not necessary or not the best options.
DTC have the potential to drive up spending on drugs and exacerbate moral hazard.
People need medications, but the poor often cannot afford them. Governments may not provide subsidies for health care and medications. Meanwhile, biopharmaceutical firms focus their R&D on compounds likely to provide the best returns. What is the proper role of the following groups in addressing these dilemmas: national governments, branded biopharmaceutical firms, and generic manufacturers?
Knowledge Booster
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- Some economists have suggested that the best way to control medical costs is to remove the profit incentive for health care providers, particularly hospitals. This would involve making all hospitals not-for-profit institutions. Use the utility maximization model to explain the likely impact such a policy would have on the cost of producing hospital services. What would happen if instead a policy was instituted that reduced barriers to entry in the hospital sector and therefore made the market more competitive?arrow_forwardIndicate whether each statement is true or false, and justify your answer.If a government wishes to maximize the rate of pharmaceutical innovation, it should offer non-expiring patents to drug companies.arrow_forwardThe Orphan Drug Act of 1983 provides tax incentives, patent protection, and research subsidies to firms for drugs, vaccines, and diagnostic agents if they are intended to treat a disease that affects less than 200,000 citizens. Explain how the Orphan Drug Act would affect drug development. Can you think of any tradeoffs from the act?arrow_forward
- Consider the following abstract from the following research paper “Do Social Connections Reduce Moral Hazard? Evidence from the New York City Taxi Industry” by C. Kirabo Jackson and Henry Schneider: “This study investigates the role of social networks in aligning the incentives of agents in settings with incomplete contracts. Specifically, the study examines the New York City taxi industry where taxis are often leased and lessee-drivers have worse driving outcomes [like gas overuse and accidents] than owner-drivers due to moral hazard… We find that drivers leasing from members of their country-of-birth community exhibit significantly reduced effects of moral hazard, representing an improvement… of the outcome measures.” 1. Thinking of moral hazard, draw an analogy between the taxi leasing industry and health insurance. Specifically, briefly highlight the following aspects Price distortion effects Behaviour change due to price sensitivity Information asymmetry Social loss 2. The paper…arrow_forwardWhich of the following is the clearest economic rationale for the US government funding research into new medical technologies: Knowledge has some features of a "public good," and therefore is likely to be under-provided in private markets Relying on private investment in medical technologies will lead to a Medical Arms Race In contrast to government, private fiırms cannot "efficiently* direct resources toward medical research projects with the highest social return because they do not know what technological developments will be most useful from a social welfare perspective O Allowing advanced technologies to propagate outside the bounds of government controls could hasten the Singularity-the event in which true artificial intelligence is born-and eventually lead to the destruction of all human life at the hands of the machines.arrow_forwardAccording to Gaynor, Laudicella, and Propper (2011), In the U.K., most hospitals are owned by the government, rather than privately held. In a setting where most hospitals are not owned by the government (such as in the U.S.), what effect do you predict that hospital mergers would have on the price of hospital care? Presumably, hospital mergers would lead to reduced competition and higher prices for any given type of care.arrow_forward
- Differential Pricing of Pharmaceuticals — The HIV/AIDS Crisis The HIV/AIDS crisis has been called the worst pandemic since the fourteenth-century’s Black Plague. The first incident of HIV/AIDS was discovered by the U.S. Centers for Disease Control in 1981.Over the next three decades, 60 million people have become infected and 25 million have died. Most HIV/AIDS cases are reported in the developing world, where 95 percent of those with HIV live today. Beyond social welfare and humanitarian concerns, as a result of globalization and the fastest growing international business opportunities in China and India, AIDS is now everybody’s business. Because the pharmaceutical industry especially relies upon governmental authority to approve formularies for reimbursement, to protect its monopoly patent rights, and to prevent importation of unauthorized, unlicensed imitation medicines, the question of how to price AIDS drugs is a public issue. Although no one has yet developed a cure for HIV, a…arrow_forwardA number of professional associations, such as the American Medical Association and the American Bar Association, support regulations that make it more costly for their members (for example, doctors and lawyers) to practice their services. While some of these regulations may stem from a genuine desire for higher-quality medical and legal services, self-interest may also play a role. Explain.arrow_forwardAssess the potential impact of the four (CAGE) culture, administrative, geographic, economic dimensions of distance on the healthcare consulting industry.arrow_forward
- Although firms are most often categorized as either goods producers or service providers, the line between these two distinct fields has become fuzzy in many cases. Question 2 options: True False Question 4 In planning the construction of a new health care facility, _____ of various units and treatment spaces is critical to ensure that services are delivered in an efficient way. Question 4 options: A) quality planning B) service delivery planning C) peak demand planning D) layout planning E) improvement planningarrow_forwardIndicate whether each statement is true or false, and justify your answer.After passage of the Kefauver–Harris Amendment in 1962, the number of new chemical entities introduced into the US market by pharmaceutical companies dropped substantially.arrow_forwardIndicate whether each statement is true or false, and justify your answer.Most economists think that innovation is not random, and that pharmaceutical companies can steer their research toward profit opportunities.arrow_forward
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