Economics 436
Health Economics
Study Questions for Midterm Exam
Professor Thornton
Winter 2009
Definitions
Health care system
Medical care services
Validation services
WHO definition of health
Medical care need
Full price of medical care
Economic incentive
Evidence-based medicine
Quality adjusted life years
Health outcome study
P-value
Overtreatment
These questions do not require complete sentence answers
1. List 3 distinct features that make the market for medical care services different from the market for a
typical good or service.
2. List 2 alternative mechanisms a nation can use to socially organize medical care services.
3. List 2 types of uncertainty that characterize the market for medical care services.
4. List 3 types of outputs produced by the medical care industry.
5. List 3 insights of the Grossman theory of consumer/patient behavior discussed in class.
6. List 3 important social problems that are said to exist in the U.S. healthcare system.
7. List 3 reasons why many healthcare experts believe the quality of medical care in the U.S. is lower
than it should be.
8. List the two main types of evidence-based medicine.
9. List 3 often used measures of health status in health outcomes studies.
10. List the 4 objectives of a health outcome study.
11. List 3 reasons why the U.S. over consumes medical care services.
These questions can be answered in 3 to 6 sentences.
1. Health economists argue that an important characteristic of medical markets is demand uncertainty.
What is demand uncertainty and why does it give rise to health insurance?
2. Many health economists argue that the relationship between patients and doctors in medical markets
is not a typical producer/consumer relationship, but rather a principal/agent relationship. What is a
principal/agent relationship and why might it occur in medical markets?
3. What is moral hazard? Why is moral hazard likely to exist in medical markets?
4. Explain how medical care services can increase the productive capacity of the economy.
5. Explain the economic definition/concept of health.
6. Economists argue that health is a type of “human capital.” What does this mean?
7. Economists argue that health is a good that yields individuals benefits or utility. However, this good
cannot be purchased in the marketplace. In the context of the Grossman theory of consumer/patient
behavior explain how individuals obtain this good.
8. Economist Christopher Ruhm’s research suggests that economic recessions are good for your health.
In the context of the Grossman theory of consumer/patient behavior, provide an explanation for this.
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9. In the context of the Grossman theory of consumer/patient behavior, explain why health is both a
consumption good and investment good.
10. If you were a health policymaker whose objective is to maximize the welfare of society, how would
you define unnecessary medical care. Justify your answer.
11. Many people argue that individuals without health insurance don’t have access to medical care
services. Do you agree or disagree? Explain.
12. About 46 million Americans do not have health insurance. What sorts of people tend not to have
health insurance?
13. From an economic point of view, do you believe the U.S. should extend health insurance coverage to
the 46 million uninsured Americans? Yes/no. Explain. Make sure you use economic logic to answer
this question.
14. Suppose that 200 subjects are randomly assigned to treatment and control groups, with 100 subjects
in each group. The treatment group receives a cardiovascular drug, while the control group receives a
placebo. Over a 5 year period, 7 subjects in the treatment group and 10 subjects in the control group
die from heart disease. Calculate the relative risk of heart disease mortality for subjects who take the
drug compared to those who don’t take the drug. Show your work. Interpret this risk measure. Exactly
what information does relative risk give you?
15. What is a confounding factor? Give an example.
16. What is reverse causation? Give an example.
17. What is the difference between an experimental health outcomes study and an observational health
outcomes study?
18. A RAND Corporation study estimated that 33% of medical care spending in the U.S. (approximately
$700 billion per year) is unnecessary under the medical definition of unnecessary. If the RAND
Corporation defined unnecessary medical care using the social economic welfare definition, do you
believe the estimate of unnecessary medical care would be less than, equal to, or greater than 33%?
Explain.
19. Many health care experts argue that rapidly rising medical care spending is an important social
problem. What is the nature of this social problem?
20. An important social problem that is said to exist in the health care system in the U.S. involves
medical care access. Explain the nature of this social problem.
These questions have no suggested limit; however, try to be concise and substantive
1. What is supplier induced demand. Explain how asymmetric information between patients and
physicians in medical markets might result in supplier (physician) induced demand.
2. Studies suggest that 30% to 40% of age 60 women choose not to have annual mammograms? In the
context of the Grossman model of consumer/patient behavior, explain why this might be a rational
choice for some women.
3. Some healthcare experts argue that the practice of medicine is based more on folklore than science.
Explain this argument.
4. Some healthcare experts argue that the practice of medicine is driven more by money than by science.
Do you agree or disagree. Justify your answer.
5. Do you believe doctors should use evidence-based medicine when making medical decisions?
Yes/No. Support your answer.
6. What are regional variations in medical practice patterns? Why do you think they exist? What does
this suggest about the quality of medical care in the U.S.?
7. Explain the difference between absolute risk, relative risk, and marginal risk as they apply to health
outcomes. Which measure of risk is the most important to a patient when deciding whether to have a
particular medical treatment?
8. It is an empirical fact that rich people are healthier and live longer than poor people. Explain the
reasons why this is.
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9. Some health care analysts argue that health care reform has little to do with the health status of the
population. Do you agree or disagree with this argument? Support your answer.
10. Discuss the advantages and limitations of a randomized controlled experiment.
11. You have received a sizable grant from a pharmaceutical company to do a randomized controlled
experiment to analyze the relationship between quercetin and heart disease. Quercetin is a
phytochemical found in fruits like apples and blueberries. The pharmaceutical company has found a
way to extract quercetin from fruit so it can be taken in pill form. What are the objectives of your
study? Explain how you would do a randomized controlled experiment and use the information
obtained to answer the questions that define your objectives.
12. Many healthcare experts believe the U.S. is experiencing flat-of-the-curve medicine. What is meant
by the term flat-of-the-curve medicine? Discuss the methodology and findings of a randomized
controlled experiment that provides evidence of flat-of-the-curve medicine.
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