# Accounting I

1. In your own words, use utility analysis and production theory to explain why the demand curve for medical care is downward sloping.
2. After reading the chapter on demand theory, a classmate turns to you and says, “I’m rather confused. According to economic theory, people demand a good or service because it yields utility. This obviously does not apply to medical services. Just last week I went to the dentist and had a root canal, and you can’t tell me I received any utility or satisfaction from that!” Explain to your classmate how utility analysis can be used to explain why he went to the dentist.
3. Use a graph to illustrate how the following changes would affect the demand curve for inpatient services at a hospital in a large city. a. Average real income in the community increases. b. In an attempt to cut costs, the largest employer in the area increases the coinsurance rate for employee health care coverage from 10 percent to 20 percent. c. The hospital relocates from the center of the city, where a majority of the people live, to a suburb. d. A number of physicians in the area join together and open up a discount-price walk-in clinic; the price elasticity of demand between physician services and inpatient hospital services is À0.50.
4. Many elderly people have purchased medigap insurance policies to cover a growing Medicare copayment. These policies cover some or all of the medical costs not covered by Medicare. Use economic theory to explain how these policies likely influence the demand for health care by elderly people.
5. If you are covered by a private or a public insurance plan, obtain a pamphlet outlining the benefits provided and the cost of the plan. Are there any copayments or deductibles? If so, use economic theory to explain how they may influence your demand for medical care.
6. In your own words, explain what a fuzzy demand curve is. Why does it exist? What are its implications? 15 BUS508 – Economics of Health and Medical Care Course Syllabus
7. In reaction to higher input costs, a physician decides to increase the average price of a visit by 5 percent. Will total revenues increase or decrease as a result of this action? Use the concept of price elasticity to substantiate your answer.
8. You have just been put in charge of estimating the demand for hospital services in a major U.S. city. What economic and noneconomic variables would you include in your analysis? Justify why each variable should be included in the study, and explain how a change in each variable would likely affect the overall demand for hospital services.
9. Define own-price elasticity of demand, and explain how it is related to the demand curve. Provide four reasons why the demand for medical services is likely to be inelastic with respect to its price.
10. You are employed as an economic consultant to the regional planning office of a large metropolitan area, and your task is to estimate the demand for hospital services in the area. Your estimates indicate that the own-price elasticity of demand equals À0.25, the income elasticity of demand equals 0.45, the cross- price elasticity of demand for hospital services with respect to the price of nursing home services equals À0.1, and the elasticity of travel time equals −0.37. Use this information to project the impact of the following changes on the demand for hospital services.
a. Average travel time to the hospital diminishes by 5 percent due to overall improvements in the public transportation system.
b. The price of nursing home care decreases by 10 percent.
c. Average real income decreases by 10 percent.
d. The hospital is forced to increase its price for services by 2 percent.

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