eco question

A. True/False Explain. Indicate whether each of the following statements is true or false and then

explain why you think this. Include in your explanation any pertinent institutional details and economic

reasoning (including appropriate graphs and equations). Please provide concise, clear answers with

minimal irrelevant detail. Explanation is required.

1. According to the Dartmouth Atlas of Healthcare, most of the variation in Medicare spending

across different regions in the US can be explained by the underuse of important preventative

care services in many areas of the country.

2. State policies that mandated the release of physician report cards, which contained information

about the risk-adjusted mortality rates of the patients of cardiac surgeons, were greatly beneficial

to consumers by allowing them to more efficiently search for high quality surgeons.

3. Clemens and Gottlieb (2014) found that when physicians receive lower prices, they provide less

medical care to their patients.

Analytical Questions: Please show all calculations for full credit.

4. Health Demand: Aggregate demand for hospital visits in the US is given by

Q = 10,000,000 - 100P. The supply of hospital visits is perfectly elastic, with a market price per visit of $10,000.

a) [1 point] How many hospital visits are purchased?

b) [2 points] What is the total amount of money spent on hospital visits?

c) [3 points] A new universal health insurance policy provides insurance to everyone in the country, which pays 80% of all medical costs. After this policy is enacted, what will happen to the total amount of money spent on hospital visits?

d) [5 points] What is the deadweight loss from moral hazard caused by this policy?

5. Physician Supply: The supply of physician office visits is given by QS=40P-1000, and demand for

physician office visits is QD=6000-60P.

a. [2 points] If the market is perfectly competitive, what are the equilibrium price and

quantity?

b. [3 points] Suppose there is an entry barrier that prevents new physicians from entering

the market, which limits QS ≤ 1200. What is the market price given this entry barrier?

c. [3 points] How much total welfare (consumer surplus + producer surplus) is lost because

of the entry barrier?

Short Answers

6. [5 points] Dranove and Wehner (1994) argue that the statistical evidence used to support the

supplier-induced demand hypothesis is invalid because they find that the same statistical

techniques also suggest that obstetricians induce demand. Briefly explain the supplier-induced

demand hypothesis and why this finding by Dranove and Wehner is evidence against the

hypothesis.