HEALTH ECONOMICS HOMEWORK - Why Health

Economics
HEALTH ECONOMICS HOMEWORK - Why Health Economics

Question
HEALTH ECONOMICS
HOMEWORK 1
DUE IN-CLASS TUESDAY, APRIL 12
Chapter 1 – Why Health Economics?
1.
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health-economics
HEALTH ECONOMICS HOMEWORK - Why Health Economics

Question
HEALTH ECONOMICS
HOMEWORK 1
DUE IN-CLASS TUESDAY, APRIL 12
Chapter 1 – Why Health Economics?
1. In healthcare, the “goods” are different than most other goods studied in economics. This is
because
of uncertainty and the asymmetry of information. Consider the following two goods: skateboards
and health insurance
a.) Explain why these goods are different in terms of uncertainty
b.) Explain why these goods are different in terms of information asymmetry
Chapter 2 – Demand for Health Care
2. Suppose the demand for flu shots looks like the following.
a.) What do we call this type of demand?
b.) Explain what this type of demand tells us about consumers.
c.) Suppose the efficient quantity of flu shots is 100. With this type of demand, could a
particularly
high/low copayment rate ever prevent the efficient Q from emerging as the equilibrium?

P Flu Shots

Demand

100

Q Flu Shots

3. In actuality, it is unlikely that the demand curve for flu vaccinations is vertical. Instead, it
probably
looks more similar to the following.
a.) What do we call this type of demand?
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b.) Explain what this type of demand tells us about consumers.
c.) Suppose the efficient quantity of flu shots is 100. With this type of demand, could a
particularly
high/low copayment rate ever prevent the efficient Q from emerging as the equilibrium?

P Flu Shots

Demand
Q Flu Shots

4. Assume old men’s demand for flu shots looks like the one shown in question 3.
a.) Would you expect old men’s demand curve for a medicine that protects against the Zika
Virus to
have a steeper or flatter sloe than old men’s demand curve for flu shots? Why? (The Zika Virus
is most harmful for pregnant women.)
b.) Compared to old men, would you expect young women to have a steeper or flatter demand
curve
for the Zika Virus medicine? Why?
5. Assume a group of health economists want to determine the demand for doctor visits. To do
so, they
conduct an experiment in which they randomly assign 100 individuals a health insurance policy
with
a 15% copayment rate, and another 100 individuals a health insurance policy with a 30%
copayment
rate. Each doctor visit comes with a medical bill of $100. The researchers observe that among
the
15% copayment group, 80 doctor visits are consumed; among the 30% copayment group, 70
doctor
visits are consumed.
a) In a graph with “Number of doctor visits consumed” on the x-axis, and “Price per doctor visit,
paid by individual” on the y-axis, plot the two dots along the demand curve that the researchers
have uncovered.
b) If the 15% copayment rate emerged first, followed by the 30% copayment rate, then what is
the
elasticity of demand
c) If the 30% copayment rate emerged first, followed by the 15% copayment rate, then what is
the
elasticity of demand?
d) What is the arc elasticity of demand?
6. Briefly look at the following article, “Impact of Decreasing Copayments on Medication
Adherence
Within a Disease Management Environment” published in Health Affairs in 2008. (A copy of the
article is posted to the SmartSite if you cannot access the hyperlink.)
a.) In 2-3 sentences, explain how the authors try to measure the relationship between
medication
price and medication adherence.
b.) If consumers are sensitive to the price of medication, what would you *expect* the study to
find?
c.) Recall, we want to mimic “parallel worlds” when we set up experiments. Look at the first two
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rows of Exhibit 1. When we compare the intervention firm to the control firm in 2004, what
evidence do we see that the two worlds are not parallel?

d.) On average, who would you expect to be more sensitive to the price of medication – young
people or old people? Why? Based on your answer and the information in Exhibit 1, do you
think this study is more likely to overstate or understate the overall populations’ sensitivity to
medication prices? Explain. (Hint: People working at the intervention firm got lower medication
prices than people at the control firm.)
e.) Now look at Exhibit 3. To what drug are people most price-sensitive?

f.) Keep looking at Exhibit 3. For each drug category, you have the elasticity and you have the
percent increase in adherence (Column 3). Treat the percent increase in adherence as the
%?Q.
What is the %?P for Statins?

Chapter 3 – Demand for Health: The Grossman Model

7. What are the two inputs of utility in the Grossman model?
8. For each of the items you list above, specify the individual variables which are included in the
input.
9. In the question above, you should have a total of five variables listed. For each item below,
state
which of the five categories the item falls under:
a.) Running shoes
b.) Afternoon spent running
c.) Being born with a good immune system
d.) Candy bar
10. In the Grossman model, there are two things that prevent people from producing infinite
utility. What
are these two things?

11. For each of the things you listed above, write the associated equation which represents the
constraint.
12. What is “productive time”, both intuitively and mathematically?
13. In the Grossman model, the PPF is rainbow shaped.
a.) Explain why the first half of the curve is sloped upward.
b.) Explain why the second half of the curve is sloped downward.
c.) Explain why the second half of the curve is really the only effective constraint an individual
faces.
14. Consider the Grossman model. For each scenario, correctly complete the sentence using
the
following guidelines:
For the first blank, respond with either “increase” or “decrease”.
For the second blank, insert a number.
For the third blank, respond with either “upward sloping portion”, “downward sloping
portion”, or “peak”.
a.) John is deciding how much H and Z to produce. He chooses to increase the time he spends
on
health by 1 hr per day and this causes the time he spends being sick to fall by 2 hrs per day.
As a result of John’s decision, his productive time will ______________ by _____ hours
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 per day.
John is on the ________________________________of the H/Z PPF.
b.) Mary is deciding how much H and Z to produce. She chooses to decrease the time she
spends on
health by 3 hrs per day and this causes the time she spends being sick to increase by 1 hr per
day.
As a result of Mary’s decision, her productive time will _____________ by _____ hours per
day.
Mary is on the ________________________________of the H/Z PPF.

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