HEALTH ECONOMICSHOMEWORK 1DUE IN-CLASS TUESDAY, APRIL 12Chapter 1 – Why Health Economics?1. In healthcare, the “goods” are different than most other goods studied in economics. This is becauseof...

HEALTH ECONOMICSHOMEWORK 1DUE IN-CLASS TUESDAY, APRIL 12Chapter 1 – Why Health Economics?1. In healthcare, the “goods” are different than most other goods studied in economics. This is becauseof uncertainty and the asymmetry of information. Consider the following two goods: skateboardsand health insurancea.) Explain why these goods are different in terms of uncertaintyb.) Explain why these goods are different in terms of information asymmetryChapter 2 – Demand for Health Care2. Suppose the demand for flu shots looks like the following.a.) What do we call this type of demand?b.) Explain what this type of demand tells us about consumers.c.) Suppose the efficient quantity of flu shots is 100. With this type of demand, could a particularlyhigh/low copayment rate ever prevent the efficient Q from emerging as the equilibrium?P Flu ShotsDemand100Q Flu Shots3. In actuality, it is unlikely that the demand curve for flu vaccinations is vertical. Instead, it probablylooks more similar to the following.a.) What do we call this type of demand?b.) Explain what this type of demand tells us about consumers.c.) Suppose the efficient quantity of flu shots is 100. With this type of demand, could a particularlyhigh/low copayment rate ever prevent the efficient Q from emerging as the equilibrium?P Flu ShotsDemandQ Flu Shots4. Assume old men’s demand for flu shots looks like the one shown in question 3.a.) Would you expect old men’s demand curve for a medicine that protects against the Zika Virus tohave a steeper or flatter sloe than old men’s demand curve for flu shots? Why? (The Zika Virusis most harmful for pregnant women.)b.) Compared to old men, would you expect young women to have a steeper or flatter demand curvefor the Zika Virus medicine? Why?5. Assume a group of health economists want to determine the demand for doctor visits. To do so, theyconduct an experiment in which they randomly assign 100 individuals a health insurance policy witha 15% copayment rate, and another 100 individuals a health insurance policy with a 30% copaymentrate. Each doctor visit comes with a medical bill of $100. The researchers observe that among the15% copayment group, 80 doctor visits are consumed; among the 30% copayment group, 70 doctorvisits are consumed.a) In a graph with “Number of doctor visits consumed” on the x-axis, and “Price per doctor visit,paid by individual” on the y-axis, plot the two dots along the demand curve that the researchershave uncovered.b) If the 15% copayment rate emerged first, followed by the 30% copayment rate, then what is theelasticity of demandc) If the 30% copayment rate emerged first, followed by the 15% copayment rate, then what is theelasticity of demand?d) What is the arc elasticity of demand?6. Briefly look at the following article, “Impact of Decreasing Copayments on Medication AdherenceWithin a Disease Management Environment” published in Health Affairs in 2008. (A copy of thearticle is posted to the SmartSite if you cannot access the hyperlink.)a.) In 2-3 sentences, explain how the authors try to measure the relationship between medicationprice and medication adherence.b.) If consumers are sensitive to the price of medication, what would you *expect* the study to find?c.) Recall, we want to mimic “parallel worlds” when we set up experiments. Look at the first tworows of Exhibit 1. When we compare the intervention firm to the control firm in 2004, whatevidence do we see that the two worlds are not parallel?d.) On average, who would you expect to be more sensitive to the price of medication – youngpeople or old people? Why? Based on your answer and the information in Exhibit 1, do youthink this study is more likely to overstate or understate the overall populations’ sensitivity tomedication prices? Explain. (Hint: People working at the intervention firm got lower medicationprices than people at the control firm.)e.) Now look at Exhibit 3. To what drug are people most price-sensitive?f.) Keep looking at Exhibit 3. For each drug category, you have the elasticity and you have thepercent increase in adherence (Column 3). Treat the percent increase in adherence as the %∆Q.What is the %∆P for Statins?Chapter 3 – Demand for Health: The Grossman Model7. What are the two inputs of utility in the Grossman model?8. For each of the items you list above, specify the individual variables which are included in the input.9. In the question above, you should have a total of five variables listed. For each item below, statewhich of the five categories the item falls under:a.) Running shoesb.) Afternoon spent runningc.) Being born with a good immune systemd.) Candy bar10. In the Grossman model, there are two things that prevent people from producing infinite utility. Whatare these two things?11. For each of the things you listed above, write the associated equation which represents the constraint.12. What is “productive time”, both intuitively and mathematically?13. In the Grossman model, the PPF is rainbow shaped.a.) Explain why the first half of the curve is sloped upward.b.) Explain why the second half of the curve is sloped downward.c.) Explain why the second half of the curve is really the only effective constraint an individualfaces.14. Consider the Grossman model. For each scenario, correctly complete the sentence using thefollowing guidelines:For the first blank, respond with either “increase” or “decrease”.For the second blank, insert a number.For the third blank, respond with either “upward sloping portion”, “downward slopingportion”, or “peak”.a.) John is deciding how much H and Z to produce. He chooses to increase the time he spends onhealth by 1 hr per day and this causes the time he spends being sick to fall by 2 hrs per day.As a result of John’s decision, his productive time will ______________ by _____ hours per day.John is on the ________________________________of the H/Z PPF.b.) Mary is deciding how much H and Z to produce. She chooses to decrease the time she spends onhealth by 3 hrs per day and this causes the time she spends being sick to increase by 1 hr per day.As a result of Mary’s decision, her productive time will _____________ by _____ hours per day.Mary is on the ________________________________of the H/Z PPF.