Macroeconomics 2017 (Hubbard)
Chapter 5 The Economics of Health Care
5.1 The Improving Health of People in the United States
1) In 2015, the average life expectancy at birth in the United Kingdom and other high-income countries
was around ________ years.
A) 60
B) 70
C) 80
D) 90
2) In 2015, infant mortality in the United States was ________ per 1,000 live births.
A) 6.2
B) 45.4
C) 82.7
D) 228.9
3) On average, people in low-income countries ________ than people in high-income countries.
A) have a longer life expectancy
B) are subject to a lower infant mortality rate
C) are shorter
D) are exposed to fewer severe diseases
4) In 2015, the average height of adult males in the United States was
A) 5′ 7.0″.
B) 5′ 9.5″.
C) 6′ 0.0″.
D) 6′ 4.75″.
5) Between 1981 and 2013, deaths from kidney disease increased largely due to the effects of
A) increasing obesity.
B) increasing alcohol consumption.
C) increased smoking.
D) increased pollution.
6) In the United States since 1900, life expectancy at birth has ________ and the death rate has ________.
A) increased; increased
B) increased; decreased
C) decreased; increased
D) decreased; decreased
7) In the United States from 1981 to 2013, deaths from which of the following increased?
A) cancer
B) kidney disease
C) heart attacks
D) strokes
8) In the United States from 1981 to 2013, deaths from ________ increased largely due to the effects of
increasing obesity.
A) strokes
B) cancer
C) heart attacks
D) diabetes
9) Which of the following did not contributed to the overall decline in death rates in the United States
since 1981?
A) a decline in smoking
B) the decline in the population
C) the availability of new prescription drugs
D) new surgical techniques
10) Health problems prevent people from working harder, which can lower a country’s total income.
This indicates that in effect, health problems
A) are a primary cause of price decreases.
B) increase the incentive to work.
C) shift a country’s production possibilities frontier inward.
D) decrease consumer surplus.
11) Changes in the health of the average person are relatively unimportant as an indicator of changes in
the standard of living.
12) Since 1981, deaths from cardiovascular diseases have decreased in the United States.
13) The overall mortality rate in the United States has declined for the past 30 years.
14) Over time, people in the United States and other high-income countries have, on average, become
taller, which is an indication that their nutritional status has improved.
15) Briefly describe changes in life expectancy, average height, and infant mortality in the United States
since 1850.
16) How can increases in a country’s total income improve health?
17) Explain why the rates of death due to kidney disease and diabetes have slightly increased in the
United States since 1981.
5.2 Health Care around the World
1) In the United States in 2014, the percentage of people who received health insurance through their
employer was about
A) 15%.
B) 36%.
C) 55%.
D) 83%.
2) In the United States in 2014, the percentage of people with some form of health insurance was about
A) 10%.
B) 36%.
C) 55%.
D) 90%.
3) In the United States in 2014, the percentage of firms that employed more than 200 workers and did
not offer health insurance as a fringe benefit to the workers was about
A) 2%.
B) 29%.
C) 44%.
D) 98%.
4) In 2014, ________ of the uninsured were younger than age 35.
A) about 10 percent
B) less than one-third
C) over half
D) almost 85 percent
5) In the United States in 2014, about ________ of uninsured people live in families in which at least one
member has a job.
A) 12%.
B) 38%.
C) 70%.
D) 98%.
6) In the United States in 2014, the percentage of firms that employed between 3 and 199 workers and
did not offer health insurance as a fringe benefit to the workers was about
A) 2%.
B) 46%.
C) 61%.
D) 98%.
7) In the United States in 2014, a majority of people received health care through
A) Medicare.
B) Medicaid.
C) their employers.
D) individually purchased insurance policies.
8) Health insurance plans which typically reimburse doctors and hospitals with payment for each
service they provide are known as
A) fee-for-service plans.
B) preferred provider organizations.
C) single-health-payer systems.
D) health maintenance organizations.
9) Health insurance plans which typically reimburse doctors mainly by paying ________ are known as
health maintenance organizations.
A) a fee for each individual service provided
B) a fee for each individual office visit
C) an escalating fee based on the number of patients being treated
D) a flat fee per patient
10) The health care system in ________ is referred to as a single-payer health care system, and is a
system in which the government provides national health insurance to all residents.
A) Canada
B) Japan
C) the United Kingdom
D) the United States
11) The health care system in ________ is referred to as a universal health insurance system, under
which every resident is required to enroll in either a private or the government-provided health
insurance program.
A) Canada
B) Japan
C) the United Kingdom
D) the United States
12) The health care system in ________ is referred to as socialized medicine, under which the
government owns most of the hospitals and employs most of the doctors.
A) Canada
B) Japan
C) the United Kingdom
D) the United States
13) Most doctors are employed by the government and most hospitals are owned by the government in
A) Canada.
B) Japan.
C) the United Kingdom.
D) the United States.
14) In which of the following countries does health insurance not pay for most preventive care
procedures?
A) Canada
B) Japan
C) the United Kingdom
D) the United States
15) Substantial co-payments are typically not required as a part of the health care system in
A) Canada and the United Kingdom.
B) Japan and Canada.
C) the United States and Japan.
D) Japan and the United Kingdom.
16) The largest government-run health care system in the world, with 1.7 million employees, is the
National Health Service (NHS) in the United Kingdom. The NHS receives its funding primarily from
A) tariffs.
B) the World Health Organization.
C) income taxes.
D) private businesses.
17) Typically, the ________ in a country, the higher the level of spending per person on health care.
A) higher the level of income per person
B) larger the population
C) higher the level of income taxes
D) lower the median age of the population
18) Typically, the lower the level of income per person in a country, the lower the level of spending per
person on health care. This relationship between income and spending indicates that health care is a
A) normal good.
B) inferior good.
C) luxury.
D) necessity.
19) In ________, health care spending per person based on income per person is significantly higher
than the average for most other countries.
A) Austria
B) Canada
C) Norway
D) the United States
20) Of the following high-income countries, which has the highest life expectancy at birth?
A) Canada
B) Japan
C) the United Kingdom
D) the United States
21) Of the following high-income countries, which has the lowest infant mortality rate?
A) Canada
B) Japan
C) the United Kingdom
D) the United States
22) Of the following high-income countries, which has the highest mortality ratio for cancer?
A) Canada
B) Japan
C) the United Kingdom
D) the United States
23) Of the following high-income countries, which has the highest obesity rate?
A) Canada
B) Japan
C) the United Kingdom
D) the United States
24) Of the following high-income countries, which has the highest male life expectancy at age 65?
A) Canada
B) Japan
C) the United Kingdom
D) the United States
25) Of the following high-income countries, which has the highest female life expectancy at age 65?
A) Canada
B) Japan
C) the United Kingdom
D) the United States
26) In the United States in 2014, the health care industry was the largest employer in ________ states.
A) 7
B) 27
C) 34
D) 48
27) A majority of people in the United States do not have private health insurance.
28) Although most large firms in the United States offer their employees health insurance, fewer than
two-thirds accept it.
29) On average, people in the United States spend a smaller percentage of their income on health care
than do people in most other countries.
30) The United Kingdom has a health care system under which the government owns most of the
hospitals and employs most of the doctors.
31) Japan has a single-payer health care system in which the government provides national health
insurance to all Japanese residents.
32) What is health insurance?
33) Briefly describe the types of health care systems in Canada, Japan, and the United Kingdom.
34) Health care is generally considered a normal good. Briefly explain what you would expect to see
happen to spending on health care over time, with health care being considered as a normal good.
5.3 Information Problems and Externalities in the Market for Health Care
1) In the market for insurance,
A) buyers often have more information than sellers.
B) sellers often have better information than buyers.
C) sellers are protected from lawsuits brought by buyers.
D) demand is perfectly inelastic because, by law, home owners and automobile drivers must have
insurance.
2) What is the term that describes a situation in which one party to an economic transaction has less
information than the other party?
A) inefficient market hypothesis
B) asymmetric information
C) unequal market structure
D) monopsony
3) Pricing insurance policies is made difficult because buyers have more information than sellers. This
difficulty is an example of
A) moral hazard.
B) adverse selection.
C) asymmetric information.
D) the free-rider problem.
4) The Pre-Existing Condition Insurance Plan is a federally administered part of the Affordable Care
Act, and is designed for people with pre-existing medical conditions to obtain insurance. By offering
health insurance to all U.S. citizens with pre-existing medical conditions, the Pre-Existing Condition
Insurance Plan
A) eliminates asymmetric information for the insurer, but not for the insured.
B) eliminates asymmetric information for the insured, but not for the insurer.
C) eliminates asymmetric information for both the insurer and the insured.
D) reduces, but does not eliminate, asymmetric information for both the insurer and the insured.
5) In the United States, the bulk of health care spending is paid by health insurance companies. Such a
system is also called a ________ where consumers of health care pay a nominal fee and the rest is paid
by the health insurance provider.
A) universal health care system
B) third-party payer system
C) socialized medicine system
D) single-payer system
6) Consumers usually pay less than the total cost of medical treatment because
A) a third party, usually an insurance company, often pays most of the bill.
B) the federal government pays for most medical procedures.
C) competition forces doctors and hospitals to charge prices that do not cover their costs.
D) a third party, usually an employer, often pays most of the bill.
7) If a hospital knows that an insurance company will pay for most of a patient‘s bill, the hospital has
more of an incentive to require additional medical procedures and tests, even if the patient may not
require them. This is an example of
A) moral hazard.
B) the principle-agent problem.
C) asymmetric information.
D) adverse selection.
8) The principal-agent problem is a problem
A) caused by a person (principal) who hires an agent to act on his behalf but is unwilling to delegate
authority to the agent to carry out the task in the best possible way.
B) caused by agents pursuing their own interests rather than the interests of the principals who hired
them.
C) of the power system of boss and subordinate where the boss (principal) exerts influence over his
subordinates (agents) using punishment or threat.
D) that exists when a person (principal) has more information about the task than the agent he hires to
perform the task.
9) In the principal-agent relationship, the principal is
A) the owner of a resource that has hired a third party to act in the best interest of that third party.
B) the person who is placed in control over resources that are not his own, with a contractual obligation
to use these resources in the interests of some other party.
C) the person who is placed in control over resources that are not his own and agrees to compensate the
resource owner in the event of outcomes that do not satisfy the resource owner.
D) the person who places his resources in professional hands in exchange for the professional’s promise
to act on the resource owner’s behalf.
10) The study of the problems due to asymmetric information was begun when economists analyzed
which type of market?
A) the market for citrus fruit
B) the market for insurance
C) farmers’ markets
D) the market for automobiles
11) Which of the following Nobel laureates became known for the study of asymmetric information?
A) Gary Becker
B) Michael Spence
C) George Ackerlof
D) Ronald Coase
12) Adverse selection will occur in a market as a result of
A) asymmetric information.
B) moral hazard.
C) the sale of “lemons.”
D) rational ignorance.
13) Which of the following is an example of adverse selection?
A) The odds of a fire rise after a building is insured because the person with fire insurance is likely to
pay less attention to fire hazards.
B) Someone who did not install fire alarms and a sprinkler system in a building he owns buys insurance
for the building.
C) Someone with automobile insurance drives more recklessly than someone without insurance.
D) People prefer to buy new cars rather than used cars.
14) Why is the study of asymmetric information associated with the market for “lemons”?
A) Sellers of citrus fruit — lemons, oranges, grapefruit — know the difference between bad fruit and
good fruit; buyers do not have this information.
B) Because there is little advertising in the market for lemons, buyers have difficulty determining the
quality of lemons before they are purchased.
C) Potential buyers of used cars have difficulty separating good used cars from bad used cars; bad used
cars are often referred to as “lemons.”
D) Most sellers of used cars have less information about their cars than the dealers who buy them; used
cars are often referred to as “lemons.”
15) Because of asymmetric information, most used cars that are offered for sale will be sold for prices
that are greater than their true value. Because of this fact, the used car market falls victim to
A) the free-rider problem.
B) deadweight loss and economic inefficiency.
C) a surplus of used cars.
D) adverse selection.
16) Suppose that in a market for used cars, there are good used cars and bad used cars (lemons).
Consumers are willing to pay as much as $9,000 for a good used car but only $3,000 for a lemon. Sellers
of good used cars value their cars at $7,500 each and sellers of lemons value their cars at $1,500 each.
Buyers cannot tell if a used car is reliable or is a lemon. Based on this information, what is the likely
outcome in the market for used cars?
A) Sellers of good used cars will drop out of the market.
B) Sellers of good used cars will incur losses.
C) Sellers of lemons will drop out of the market.
D) Used cars will sell for $6,000.
17) Adverse selection in the market for health insurance arises because
A) many insurance companies care more about profits than they do about providing services for their
customers in the event of illness.
B) the federal government intervenes in insurance markets by controlling prices and reimbursement
policies.
C) insurance companies are not allowed to charge premiums that are high enough to insure against
“worst-case” illness.
D) buyers of insurance know more than insurance companies about the likelihood of an illness for
which buyers want insurance.
18) Economists refer to the actions people take after they have entered into a transaction that makes the
other party to the transaction worse off as
A) bad faith.
B) economic inefficiency.
C) moral hazard.
D) market failure.
19) In the 1973 movie Save the Tiger, Jack Lemmon plays Harry Stoner, the CEO of a clothing
manufacturer whose business has fallen on hard times. In one of the key scenes of the movie, Stoner
tries to convince his partner that they should hire someone to burn one of their buildings in order to
collect on their insurance policy. Harry Stoner’s actions are an example of
A) adverse selection.
B) moral hazard.
C) self-interest.
D) asymmetric information.
20) In the 1973 movie Save the Tiger, Jack Lemmon plays Harry Stoner, the CEO of a clothing
manufacturer whose business has fallen on hard times. At one point in the movie, Stoner convinces his
partner to hire someone to burn one of their buildings to collect on their insurance policy. What term
refers to the information problem that led the insurance company to sell a policy for this building to
Stoner and his partner?
A) rational ignorance
B) the principal-agent problem
C) adverse selection
D) moral hazard
21) Two consequences of asymmetric information are adverse selection and moral hazard. An important
distinction between the two is
A) adverse selection exists prior to the completion of a transaction while moral hazard occurs after the
transaction is completed.
B) moral hazard exists prior to the completion of a transaction while adverse selection occurs after the
transaction is completed.
C) adverse selection leads to an inefficient quantity while moral hazard leads to an efficient quantity.
D) moral hazard leads to an inefficient quantity while adverse selection leads to an efficient quantity.
22) The difference between adverse selection and moral hazard is that
A) moral hazard happens at the time parties enter into a transaction; adverse selection occurs after the
transaction takes place.
B) adverse selection happens at the time parties enter into a transaction; moral hazard occurs after the
transaction takes place.
C) moral hazard is the motive that is behind one party entering into a transaction with another party.
Adverse selection refers to the other party being harmed by the transaction.
D) moral hazard refers to the likelihood that a transaction will lead one party to be better off at the
expense of the other party to the transaction. Adverse selection refers to the consequences of the
transaction after it has occurred.
23) ________ occurs when one party takes advantage of having more information than another party
about the attributes of the good or service they will exchange.
A) A negative externality
B) Moral hazard
C) A transaction cost
D) Adverse selection
24) ________ occurs when actions taken by one party to a transaction are different from what the other
party expected at the time of the transaction.
A) Adverse selection
B) Risk aversion
C) Fraud
D) Moral hazard
25) Suppose that in a market for used cars, there are good used cars and bad used cars (lemons).
Consumers are willing to pay as much as $6,000 for a good used car but only $1,000 for a lemon. Sellers
of good used cars value their cars at $5,000 each and sellers of lemons value their cars at $800 each.
Buyers cannot tell if a used car is reliable or is a lemon. Based on this information, what is the likely
outcome in the market for used cars?
A) Both good used cars and lemons will sell for $4,500 each.
B) Only lemons will sell, for $800 each.
C) Both good used cars and lemons will sell for $1,000 each.
D) Most used cars offered for sale will be lemons.