Order 335062: Read Instructions
Mitchell, Taylor N.
Donaldson, Jayda N
Recommended Presentation Outline
My Name is …
The title of my article is…
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My article is relevant and interesting because….
The Economics Article
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Economics
The study of the allocation of scarce resources: implies a cost to every action
Basic assumption
People are rational
People act to maximize their happiness
Economics is predictive
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Economic Modeling
"The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions." (John Maynard Keynes)
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Demand
Function of
Income
Tastes
Prices of Substitutes
Prices of Compliments
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P
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Q*
P*
Q**
P**
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P
Q
D
D1
P1
P2
Q1
Q2
Q1
Q2
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Price Elasticity of Demand
A measure of sensitivity of quantity demanded to a change in price
Q/Q)
(P/P)
Inelastic demand means that E is small
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Supply
Function of
Costs of Production
Input Prices
Technology
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Q
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S1
P1
P2
Q1
Q2
Q1
Q2
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Utility Maximization
MAX U(F, N)
Subject to the budget constraint:
PnN + PfF = I
(with a little algebra)
N= I/Pn - (Pf / Pn) F
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Good X
Y
I/PY
U2
U1
U3
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Theory of the Firm
Firm Maximizes profits
Max: p = Revenue - Costs
Max: p = P(Q)* Q- C(Q)
First Order Conditions:
dp/dQ = P’(Q)*P + P(Q) - C’(Q) =0
P’(Q)*P + P(Q) = C’(Q)
Marginal Revenue = Marginal Costs
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X
$
0
AC
MC
P1
Po
X1
Xo
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Assumptions of Perfect Competition
Free Entry and Exit
Many Buyers and Sellers
Perfect Information
Homogenous product
Costless price and quality information
No externalities
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Monopoly
Literally means one seller
Model applies when firm is large enough to affect price
Meets significant portion of total market demand
Monopoly occurs when
Barriers to entry exist
Large economies of scale (minimum efficient scale is large relative to market)
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MC
AC
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Oligopoly
Few Sellers
What degree of market power do they have?
Market power = firm faces downward sloping demand
Why strive to achieve market power?
Long-run vs Short Run
What are the barriers to market power
Regulation
Sherman & Clayton Acts among others make it illegal to exercise monopoly power
Patents
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Mergers
Horizontal
A merger between two firms producing the same good
Increases market power
Decreases costs only if firms were operating on increasing returns to scale
Examples: Hospitals Merge
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Horizontal Mergers
Measurement
Economists would like: (P-MC)/MC
Use: Concentration Ratio
% of market share of largest firms
Hirschman-Herfindahl Index
Sum of market share squared for every firm in market
Example: Three firms--largest has 70% of market, second has 20, third has 10. HHI=(.7*.7) + (.2*.2) + (.1*.1)= .49 + .04 +.01 =.54
Usually multiply by 10000 so example HHI=5400.
FTC states any HHI > 2,000 is highly concentrated
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Imperfect Information Issues
Uncertainty/ Risk
Unknown product characteristics
High cost of information
Unknown futures
Unpredictable occurrences
Asymmetrical information
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Insurance
Actuarially Fair Premium: Expected claims= total premiums
EV=P*W1 + (1 - P) * W2
W2 = EV/(1-P) - P/(1-P) * W1
Actuarially Fair Premium = P/(1-P)
Premium = Actuarially Fair Premium + Loading
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45o
U0
U1
Insurance Line
W2
W1
A
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45o
EU0
EU1
Insurance Line (with Loading)
W2
W1
A
W1*
W2*
EU2
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Adverse Selection
Insurance companies can’t observe actual risks
Those with highest risk have highest demand
Premium reflects high risk so low risk don’t purchase coverage
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Moral Hazard
Moral Hazard occurs when the agent’s incentives differ from the principal’s
House painter paid on an hourly takes twice as as long as painter paid on a per job rate.
Doctor orders too many tests
Insured individual takes too many risks
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Assumptions of Perfect Competition
Free Entry and Exit
Many Buyers and Sellers
Perfect Information
Homogenous product
Costless price and quality information
No externalities
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Public Goods
Non-Excludable
Non-rivalrous
Sunsets
National Defense
TV/radio?
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Demand for Public goods
Sum of individual demands?
No: its non-rivalrous
Quantity determined political process
Doesn’t necessarily translate individual demands into public action
No Property Rights
Tragedy of the Commons
Free Riders
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19th Century
Rapid advancements due to discoveries of microorganisms, anesthesia, and vaccinations
Infection control developed once microorganisms were associated with disease
Formal training for nurses began
Creation of AMA
Changing roll of Hospitals
Average life span 40-60 years
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20th Century
Increased knowledge about the role of blood in the body
ABO blood groups discovered
Found out how white blood cells protect against disease
New medications were developed
Insulin discovered and used to treat diabetes
Antibiotics developed to fight infections
Vaccines were developed
New machines developed
Kidney Dialysis Machine
Heart Lung Machine
Surgical and diagnostic techniques developed to cure once fatal conditions
Average lifespan in the U.S. about 77 years
(at the end of the century)
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Historical Development
Apprenticeships →Medical Schools
AMA formed 1846
State licensure of physicians late 1800’s
GA first state to require graduation from a medical school
1892 (Harvard) and 1893 (John’s Hopkins) established 4 year training post Bachelor’s
1904: AMA created Council on Medical education and established JAMA
Published medical school failure statistics on state licensing exams
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Flexner Report
Survey of 155 medical schools in the US and Canada
Entrance requirements, endowments, laboratory quality, size and training of faculty, etc.
Supported by the Carnegie Foundation
Recommendations:
Close all but 31 schools
University based medical school with stronger scientific foundations
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Introduction of Organized Financing and Delivery
Depression: Baylor University Hospital Plan
Enrolled 1250 public school teachers
$.50 per month 21 days hospital care
Blue Cross: Sponsored by hospitals
Blue Shield: Sponsored by physicians
Benefits defined by service
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W
Q
Supply
Demand
c
C=cost of insurance
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D
Q of health services
$
D with full insurance
Q0
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Coinsurance
D
Q of health services
$
D with insurance
S
Q0
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Effect of Deductible
D
Q of health services
$
D with co-insurance
S
Q0
QC
P
QD
QF
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Technology
(Increased Benefits)
Costs
Insurance
Private Coverage
Social Insurance
(Moral Hazard)
Investment
(Capacity, Research)
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Total National Health Expenditures and As a Percentage of GDP
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0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Ye ar
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P er
ce nt
$ National Health Expenditures
National Health Expenditures Percent of GDP
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
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$
National Health Expenditures
National Health Expenditures Percent of GDP
National Health Expenditures
| Year | 0.0606195199 |
| 1965 | 0.0602361183 |
| 1966 | 0.0636532583 |
| 1967 | 0.0670667121 |
| 1968 | 0.0690905307 |
| 1969 | 0.0736203676 |
| 1970 | 0.0758126195 |
| 1971 | 0.0780900386 |
| 1972 | 0.077150131 |
| 1973 | 0.0807249482 |
| 1974 | 0.0847936306 |
| 1975 | 0.0860165858 |
| 1976 | 0.089114629 |
| 1977 | 0.090287907 |
| 1978 | 0.0892440351 |
| 1979 | 0.0929677467 |
| 1980 | 0.0961712582 |
| 1981 | 0.1037824777 |
| 1982 | 0.1077974519 |
| 1983 | 0.1054152667 |
| 1984 | 0.1066330865 |
| 1985 | 0.1074548522 |
| 1986 | 0.1111773376 |
| 1987 | 0.1159128819 |
| 1988 | 0.119003745 |
| 1989 | 0.1249057099 |
| 1990 | 0.1327464334 |
| 1991 | 0.1370290989 |
| 1992 | 0.1394766687 |
| 1993 | 0.1392258718 |
| 1994 | 0.1392785991 |
| 1995 | 0.140190711 |
| 1996 | 0.1386929675 |
| 1997 | 0.1386418531 |
| 1998 | 0.139585622 |
| 1999 | 0.1405687789 |
| 2000 | 0.1466438158 |
| 2001 | 0.1551697909 |
| 2002 | 0.1618257734 |
| 2003 | 0.162041834 |
| 2004 | 0.1623613625 |
| 2005 | 0.1624069389 |
| 2006 | 0.1657017097 |
| 2007 | 0.166 |
| 2008 | 0.176 |
Sheet1
| Year | National Health Expenditures | Percent of GDP | |||
| 1965 | 42,173 | 6.06% | 1 | 65 | $695.70 |
| 1966 | 46,430 | 6.02% | 1 | 66 | $770.80 |
| 1967 | 52,062 | 6.37% | 1 | 67 | $817.90 |
| 1968 | 59,012 | 6.71% | 1 | 68 | $879.90 |
| 1969 | 66,396 | 6.91% | 1 | 69 | $961.00 |
| 1970 | 74,894 | 7.36% | 1 | 70 | $1,017.30 |
| 1971 | 83,265 | 7.58% | 1 | 71 | $1,098.30 |
| 1972 | 92,974 | 7.81% | 1 | 72 | $1,190.60 |
| 1973 | 103,034 | 7.72% | 1 | 73 | $1,335.50 |
| 1974 | 116,809 | 8.07% | 1 | 74 | $1,447.00 |
| 1975 | 133,126 | 8.48% | 1 | 75 | $1,570.00 |
| 1976 | 152,473 | 8.60% | 1 | 76 | $1,772.60 |
| 1977 | 172,820 | 8.91% | 1 | 77 | $1,939.30 |
| 1978 | 194,119 | 9.03% | 1 | 78 | $2,150.00 |
| 1979 | 219,933 | 8.92% | 1 | 79 | $2,464.40 |
| 1980 | 253,365 | 9.30% | 1 | 80 | $2,725.30 |
| 1981 | 293,582 | 9.62% | 1 | 81 | $3,052.70 |
| 1982 | 330,734 | 10.38% | 1 | 82 | $3,186.80 |
| 1983 | 364,668 | 10.78% | 1 | 83 | $3,382.90 |
| 1984 | 401,590 | 10.54% | 1 | 84 | $3,809.60 |
| 1985 | 439,275 | 10.66% | 1 | 85 | $4,119.50 |
| 1986 | 471,254 | 10.75% | 1 | 86 | $4,385.60 |
| 1987 | 512,950 | 11.12% | 1 | 87 | $4,613.80 |
| 1988 | 573,989 | 11.59% | 1 | 88 | $4,951.90 |
| 1989 | 638,705 | 11.90% | 1 | 89 | $5,367.10 |
| 1990 | 714,011 | 12.49% | 1 | 90 | $5,716.40 |
| 1991 | 781,611 | 13.27% | 1 | 91 | $5,888.00 |
| 1992 | 849,046 | 13.70% | 1 | 92 | $6,196.10 |
| 1993 | 912,554 | 13.95% | 1 | 93 | $6,542.70 |
| 1994 | 962,190 | 13.92% | 1 | 94 | $6,911.00 |
| 1995 | 1,016,497 | 13.93% | 1 | 95 | $7,298.30 |
| 1996 | 1,068,828 | 14.02% | 1 | 96 | $7,624.10 |
| 1997 | 1,125,327 | 13.87% | 1 | 97 | $8,113.80 |
| 1998 | 1,190,476 | 13.86% | 1 | 98 | $8,586.70 |
| 1999 | 1,265,567 | 13.96% | 1 | 99 | $9,066.60 |
| 2000 | 1,353,593 | 14.06% | 1 | 0 | $9,629.40 |
| 2001 | 1,469,591 | 14.66% | 1 | 1 | $10,021.50 |
| 2002 | 1,603,416 | 15.52% | 1 | 2 | $10,333.30 |
| 2003 | 1,732,442 | 16.18% | 1 | 3 | $10,705.60 |
| 2004 | 1,852,284 | 16.20% | 1 | 4 | $11,430.90 |
| 2005 | 1,973,340 | 16.24% | 1 | 5 | $12,154.00 |
| 2006 | 2,105,541 | 16.24% | 1 | 6 | $12,964.60 |
| 2007 | 2,245,573 | 16.57% | 1 | 7 | $13,551.90 |
| 2008 | 2,394,312 | 16.60% | |||
| 2009 | 2,486,300 | 17.60% |