20 Questions

1. How long is a patent good for?

2. What is the problem with patents and new drugs?

3. As it requires more time and money to get a new drug approved, what types of drugs will not get attention?

4. What is price discrimination?

5. How do drug companies practice price discrimination?

6. Describe the features of fixed costs and variable costs with respect to new drugs.

7. A drug costs one 100,000,000 to develop and 1 to make each dose.You can sell the drug for 100. How many do you have to sell to break even?

8. Name two barriers to entry in the hospital market.

10. What percent of a typical hospital bill do individual patients pay?

11. What motivates a non-for-profit hospital?

12. Name two things a not-for-profit might try to maximize.

13. What are the five Ps that motivate managers.

14. If a manager cannot increase his salary, what else could he do to increase his status?

15. What is asymmetric information?

16. What is collusion?

17. Why would hospitals collude?

18. What type of hospital would a university research hospital fall into?

19. How do hospitals measure productivity?

 20. Do all hospitals rely on profits?

Pharmaceutical Industry

Hospital Market

Exam 2

1. What is elasticity?

A. Percent change in price divided by percent change in quantity demanded.

B. Percent change in total revenue divided by percent change in total cost

C. Percent change in quantity demanded divided by percent change in price.

D. Percent change in total cost divided by percent change in total revenue

2. Is the demand for medical care price elastic or price inelastic?

A. elastic

B. inelastic

3. What is the income elasticity for medical care?

A. greater than 1

B. less than 1

C. zero

4. Should you maximize revenue or maximize profits?

A. revenue

B. profits

5. Where do you maximize profits?

A. Marginal Revenue = Marginal Cost

B. Total Cost = Total Revenue

C. Marginal Cost = Average Profit

D. Total Profit = Total Revenue

6. How long does a patent last?

A. 10 years

B. 15 years

C. 20 years

D. 70 years

7. If you are experiencing diseconomies of scale, what should you do?

A. get smaller

B. get bigger

C. stay the same size

8. What is "Learning by Doing" suggest about average costs?

A. average costs increase by 20% when you double output

B. average costs decrease by 80% when you double output

C. average costs decrease by 20% when you double output

D. average costs decrease by 80% when you double output

9. What is information asymmetry?

 The parties in a transaction do not have equal information.

10. What are the four types of market structures?

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

11. What are four barriers to entry?

Government Protection

Key Resource

Network Externalities

Economies of Scale - Natural Monopoly

12. What is the problem with patents and new drugs?

The approval process can require a considerable amount of time, leaving less time before the patent expires.

13. Can the drug approval process harm people? Why?

 The time and cost of approval can discourage new drug development.

14. What is an example of a network externality?

 Facebook, telephones, fax machines, and others.

15. What are antitrust laws?

 Laws intended to prevent collusion and price fixing.

16. Does it always make sense to hire the lowest-wage employee? Why?

Must consider the productivity as well as wage to determine cost.

17. Name two products that are substitutes.

Snickers or KitKat, Pizza  or Chicken, and others.

18. Name two products that are complements.

Hamburger and fries, left shoe and right shoe, and others

19. If fixed costs are 500 and variable costs are 10 and the price is 20, at what quantity will you break even?

 50

20. If fixed costs are 1000 and variable costs are 100 and the price is 150, what would be your profit or loss if you sold 75 units?

2750

25 Questions

1. Name four differences between the medical market and regular markets.
2. What is elasticity?
3. Name two products that are substitutes.
4. Name two products that are complements.
5. Is the demand for medical care price elastic or price inelastic?
6. What is the income elasticity for medical care?
7. If fixed costs are 500 and variable costs are 10 and the price is 20, at what quantity will you break even?
8. If fixed costs are 1000 and variable costs are 100 and the price is 150, what would be your profit or loss if you sold 75 units?
9. Should you maximize revenue or maximize profits?
10. Where do you maximize profits?
11. What is a sunk cost?
12. Can a company become too big? Why?
13. If you are experiencing diseconomies of scale, what should you do?
14. What is "Learning by Doing" suggest about average costs?
15. What is information asymmetry?
16. What are the four types of market structures?
17. What are four barrier to entry?
18. How long does a patent last?
19. What is the problem with patents and new drugs?
20. Can the drug approval process harm people?
21. What is an example of a network externality?
22. How do monopolists increase profits?
21. What happens to marginal revenue when a monopolist reduces price?
22. What are antitrust laws?
23. Do monopolies generally last very long without government protection?
24. What is a natural monopoly?
25. Does it always make sense to hire the lowest-wage employee?

Lecture 9 Market Structures

Lecture 8 Production and Costs

Lecture 7 Demand for Medical Care

Exam 1

1. Economics is the study of

A. money and financial instruments

B. stocks and bonds

C. choice under scarcity

D. rational incentives at the margin

2. Economists assume people are

A. rational, respond to incentives, and make decisions at the margin

B. rational optimizers, and selfish

C. logical, responsible, and irrational

D. marginal, chaotic, and rational

3. If you change someone’s incentives, you may change their________.

A. worldview

B. behavior

C. political view

D. none of the above

4. What is opportunity cost?

A. the lowest valued alternative

B. what your competitor does

C. the highest valued alternative

D. the actual cost in money

5. What is comparative advantage?

A. being better at everything

B. taking advantage of the competition

C. having a lower opportunity cost than someone else

D. foreign direct investment

6. What does a production possibilities curve illustrate?

A. the tradeoff between two alternatives

B. the tradeoff between three alternatives

C. the possible opportunity costs between four comparative advantages

D. the comparative advantages of three products

7. What is the difference between positive economics and normative economics?

A. positive is about good things, normative is about normal expectations

B. positive is about marginal utility and normative is about opportunity costs

C. positive is about what is imaginary and normative is about what is real

D. positive is about what is and normative is about what ought to be

8. What does the law of diminishing marginal utility mean for medical spending and health?

A. as I spend more and more, I tend to get less and less of a gain

B. health care is a right

C. health declines as you spend more money

D. happiness is achieved by spending more and more on medical care

9. Who wins when a trade occurs?

A. buyers

B. sellers

C. both buyers and sellers

D. neither

10. How many more people are on the earth today than in 1800?

A. similar number

B. 3 times more

C. 5 times more

D. 7 times more

11. How do you expand the production possibilities curve?

A. more shovels

B. innovation and more resources

C. more hard work

D. cannot change without government permission

12. What is more important; goals or incentives?

A. goals

B. incentives

C. both are equally important

D. neither are important to economists

13. What is wealth?

A. oil

B. money

C. what people want

D. health care

14. Where is the iPhone made?

A. California

B. China

C. all over the planet

D. Europe and Asia

15. Do people always have opportunity costs?

A. always

B. most of the time

C. sometimes

D. never, if they are rich

16. What is an economic model?

A. a simplified version of reality

B. a two-way matrix

C. a production impossibilities curve

D. a pattern of efficiency, inefficient, and unobtainable locations

17. What are the primary concerns with third-party arrangements?

A. costs and benefits

B. complexity and incentives

C. choice and scarcity

D. production and distribution

18. What else do we call benefits?

A. diverted costs

B. opportunities

C. utility index

D. none of the above

19. Where is the optimal amount of health care?

A. total costs equal total benefits

B. total benefits are maximized

C. marginal costs equal marginal costs

D. minimize costs and maximize benefits

20. What are two ways to value a life under cost-benefit analysis?

A. opportunity costs and human capital

B. willingness-to-sell and yield inversion

C. present value discounting and future value compounding

D. human capital approach and willingness-to-pay approach

21. What is the weakness of the human capital approach?

A. easy to estimate

B. ignores everything but income

C. HUI is too low

D. actuarial advantage

22. If I spend 100 riyals to reduce the risk of death by 1 in 2000, what value do I give my life?

A. 2,000

B. 20,000

C. 200,000

D. 500,000

23. When there is a new innovation in medicine, what two things can happen?

A. more life for the same cost or same life for lower cost

B. more cost for the same life or same cost for less life

C. actuarial advantage or inverted yields

D. positive economics and normative economics

24. Cost Effective Analysis does what?

A. compares the marginal costs of two treatments

B. compares the costs of one treatment to the benefits of a human capital estimate

C. compares the cost effectiveness of two or more options

D. compares the human capital estimate to the human utility index

25. Can something that is less costly and less effective and still be valuable?

A. yes

B. no

More questions

1.     Name three types of costs under cost-benefit analysis

2.     Name five types of direct medical costs.

3.     Name four direct non-medical costs.

4.     Name three indirect costs.

5.     Are indirect costs easy to measure?

6.     Name four benefits

7.     What else do we call benefits?

8.     How do you calculate net benefits?

9.     Where is the optimal point to maximize net benefits?

10.  What is the compound growth formula?

11.  What is the opposite of compounding?

12.  What is the present value of 100 SR in five years if you discount at 7 percent?

13.  Compounding is ________ Discounting is ___________.

14.  Name two ways to value a life.

15.  What is the shortcoming of the human capital approach to valuing a human life?

16.  Why is the life of a 15 year old greater than the life of a 50 year old?

17.  How do you estimate the value of a life with the willingness-to-pay approach?

18.  If I would be willing to spend 10 riyals for a vitamin that has a one in a million chance of curing cancer, what value am I placing on my life?

19.  What usually indicates a higher value, the human capital approach or the willingness-to-pay approach?

20.  What two things happen when there is a new innovation in medicine?

21.  What is cost effective analysis?

22.   How does CBA compare to CEA?

23.   How do you calculate the Incremental Cost Effective Ratio?

24.   Would you ever use a option that was less costly and less effective?

25.   How to you account for the quality of life versus the quantity of life?

26.   What is the formula for Quality-Adjusted Life-Years (QALYs)

27.   What is more important, quantity or quality?

28.   What is the range for the Human Utility Index (HUI)?

29.   Name three ways to estimate the HUI.

30.   Can you survey people to get a HUI?

31.   How does a standard gamble work with HUI?

32.   How does a time trade-off with HUI?

33.   What is a Cost Utility Ratio?

34.   What is better, CEA or CUA?

35.   What is the Friedman Matrix?

36.   What are the four questions that must be asked in any health care system?

37.   What is the problem with third-parties?

38.   What are the advantages of a government health care system?

39.   What are the disadvantages of a government health care system?

40.   What are the advantages of a decentralized health care system?

41.   What are the disadvantages of a decentralized health care system?

42.   What are four things that are different about the medical market in contrast to a normal market?

43.   Can you predict events with a large group of people?

44.   Does insurance eliminate risk?

45.   Does insurance increase risk?

46.   What is risk aversion?

47.   Does progress require risk?

48.   Name three problems with insurance.

49.   What is asymmetric information?

50.   What is adverse selection?

51.   What is moral hazard?

52.   Do all insurance schemes create moral hazards?

53.   What is diversification?

54.   What kinds of incentives tend to keep costs low?

55.   If you know someone’s incentives, you can predict their ______.