Module 4

Question 1

What is the economic problem?

Answer 1

People have unlimited wants but limited resources

Question 2

What is the definition of rational in terms of economics?

Answer 2

It is assumed that people will choose to use their limited resources in the best possible way for themselves

Question 3

What is an agent in terms of economics?

Answer 3

A party of interest, could be an individual, a company or whomever

Question 4

What are the three main components of microeconomics?

Answer 4

(market) Structure- what does the market look like?
Conduct- what is done/offered/received for each agent
Performance- the outcomes of these choices

Question 5

What is production?

Answer 5

When analysing markets, economists often distinguish between producers, who offer goods and services, and consumers who buy them

Question 6

What is technical efficiency?

Answer 6

You can’t get the same outcomes with fewer resources, or more outcomes with the same resources

Question 7

What is allocative efficiency?

Answer 7

Resources are put to their best use by addressing the wants people want most stongly

Question 8

What is opportunity cost?

Answer 8

The next best alternative foregone when making a choice between alternatives

Question 9

What are the advantages of focusing on health care rather than health in general?

Answer 9

Allows a clear focus
Governments set budgets for health care
Easier to hold people accountable if they have clear responsibilities
May prevent other issues from hijacking health policy

Question 10

What are the disadvantages of focusing on health care rather than overall health?

Answer 10

Silo mentality
May be more efficient to the get the effects we want elsewhere
Health care may be less effective if not paired with expenditure elsewhere

Question 11

What is the silo mentality?

Answer 11

When individuals in the same organisation do not want to coordinate or share information

Question 12

What is the equilibrium price?

Answer 12

The price where all buyers pay no more than the value of the good to them and no seller receives less than the cost of the good

Question 13

What is a mutually beneficial trade?

Answer 13

When both the buyer and seller benefit when a trade occurs

Question 14

Why would a government interfere to prevent a market reaching equilibrium price?

Answer 14

Even if a market is efficient and achieves the maximum amount of beneficial trades, it may not necessarily be fair

Question 15

What is a mixed health care system?

Answer 15

A system where public and private health care is used

Question 16

What are the six components of a perfect market?

Answer 16

Many buyers and sellers
The same product produced by all sellers
Everybody knows the value of the good/service to buyers and sellers
The same good can only be used by one person
All people are motivated only by their own wellbeing
Free entry and exit

Question 17

What is supplier induced demand?

Answer 17

Buyers rely on sellers to inform them about the good
Buyers then act based on what the sellers tell them to do
Buyers demand more than they would have done if they had the information themselves

Question 18

What are the potential issues with supplier induced demand?

Answer 18

Target income hypothesis-doctors recommend more visits when working on fee for service
Weak evidence for a positive relationship between the numbers of doctors and the price that doctors charge-more suppliers higher price

Question 19

What is defensive medicine?

Answer 19

The provision of additional goods and services by health professionals based on fear of litigation

Question 20

Which two problems occur when buyers are more informed about their own risk than sellers?

Answer 20

Moral hazard

Adverse selection

Question 21

What is adverse selection?

Answer 21

The situation that occurs when an individual’s demand for insurance is positively correlated with an individual’s risk of loss, and therefore insurance companies are left with only high risk customers.

Question 22

What are the potential consequences of adverse selection?

Answer 22

The market disappears: those who find insurance worthwhile can’t afford it and those who can afford it don’t find it worthwhile

Question 23

What are the solutions to adverse selection?

Answer 23

Make participation in a single scheme compulsory
Offer several contracts-“cream skimming”
-good risks, low coverage, cheap rates
-bad risks, high coverage, expensive rates

Question 24

What is moral hazard?

Answer 24

Lack of incentive to guard against risk when one is insured and therefore free from it’s consequences

Question 25

What are the solutions to moral hazard?

Answer 25

Make coverage conditional No claims discounts Introduce copayments

Question 26

What makes health so different from other markets?

Answer 26

The large number of issues with the "perfect" market due to asymmetry of information Leaves many people partially ensured or funding health care out of their pockets Big equity issues

Question 27

What is the value of a good to a producer?

Answer 27

The cost of producing the good

Question 28

What is the value of a good to a consumer?

Answer 28

The value of consuming the good

Question 29

Where is the equilibrium price and quantity in relation to supply and demand curves?

Answer 29

The place where the supply and demand curves intersect

Question 30

What occurs at quantities lower than the equilibrium quantity?

Answer 30

The value to the buyer is greater than the cost to the seller

Question 31

What occurs at quantities greater than the equilibrium quantities?

Answer 31

The value to the buyer is less than the cost to the seller

Question 32

What affect does too little trade have on buyers and sellers?

Answer 32

Beneficial for sellers, bad for buyers

Question 33

What affect does too much trade have on buyers and sellers?

Answer 33

Beneficial for buyers, bad for sellers

Question 34

What are the disadvantages of free health care in terms of the market?

Answer 34

Other beneficial things cancelled to fund the inefficient use of resources Moral hazard increases costs

Question 35

What are the five ways that governments intervene in health care?

Answer 35

1. Collect information 2. Regulate and monitor 3. Fund health care 4. Purchase services 5. Provide services

Question 36

What is the purpose of governments collecting information?

Answer 36

To offset asymmetry of information between consumers and providers

Question 37

Why do governments use non market means to control price, quantity or quality?

Answer 37

Offset adverse selection Discourage moral hazard Discourage supplier induced demand Offset monopolies

Question 38

How do governments regulate insurers?

Answer 38

Make insurers take all applicants Require a minimum package of services Make insurers cover pre-existing solutions

Question 39

How do governments regulate pharmaceuticals?

Answer 39

Reimbursement systems | Prevent direct advertising of pharmaceuticals to consumers (except in NZ and States)

Question 40

What is the main reason that governments fund health services?

Answer 40

To avoid adverse selection

Question 41

Why do governments purchase health services?

Answer 41

To offset the bargaining power of monopolies

Question 42

Why do governments provide health services?

Answer 42

Offset supplier induced demand | Offset potential monopolies

Question 43

Is a health care system more efficient with or without government intervention?

Answer 43

With-relying on market allocation is less efficient eg. US

Question 44

What is an economic evaluation?

Answer 44

The systematic comparison of costs and benefits of alternative actions

Question 45

What are the three types of economic evaluation?

Answer 45

Cost benefit analysis Cost effectiveness analysis Cost utility analysis

Question 46

What does cost benefit analysis consist of?

Answer 46

A measure of total costs, regardless of to whom they occurred vs the benefits based on willingness to pay Assumes people know the value of health to them

Question 47

What does cost effectiveness analysis consist of?

Answer 47

Costs are assessed as they fall on the health sector Benefits are assessed based on something that is objectively measurable Assumes health is measurable by simple outcomes but not that people know the value of their own health

Question 48

What does cost utility analysis consist of?

Answer 48

Costs assessed as they fall on the health sector or on society as a whole Benefits assessed based on subjective measures of health eg. Quality adjusted life years (QALYs) Assumes that health is measurable by more complex outcomes but not that people know the value of their own health

Question 49

What is a Quality Adjusted Life Year?

Answer 49

1= full health 0= dead Comprised of quality of life x time x people

Question 50

What are incremental cost effectiveness ratios?

Answer 50

A measure of efficiency in terms of how much an intervention will cost and how many extra QALYs will it incur

Question 51

Why are incremental cost effectiveness ratios used?

Answer 51

Given the difficulty of trusting the market, economic evaluation is used often in decision making

Question 52

What is the Trans Pacific Partnership Agreement (TPPA)?

Answer 52

An agreement between 11 pacific rim countries including NZ to Americanise treatment of pharmaceuticals

Question 53

What affect will the TPPA have on PHARMAC?

Answer 53

It will remove PHARMAC's negotiating power Prevents bulk discounts-price of drugs will increase by 30-40% Give drug companies formal rights of appeal and specific reasons must be given for failure to fund specific pharmaceuticals Publish identities of decision makers Patenting of medical techniques Extend patents of pharmaceuticals

Question 54

What is a community rating?

Answer 54

When the premium paid by everyone who gets insurance reflects the average risk level of the population

Question 55

What are some examples of how governments regulate providers?

Answer 55

Through quality eg. standards of facilities Through price eg. GP fees Through quantity eg. number of med students