question paper exercise 2 | Cheat Sheet Economics

Health Economics Professor Ashwini Sankar

Problem Set #2 Spring 2022

Due: Friday, February 18th

Instructions: Please type your answers into this Word file and upload it to the problem set answer

folder of the course Moodle page. Draw your diagrams by hand (use of a ruler highly

recommended), take photographs of the diagrams and insert them into the file. Higher marks will

be given to those who write clearly and draw precise diagrams (i.e., properly labeled, straight

lines, use of color if appropriate, etc.).

******** PLEASE UPLOAD ONLY WORD OR PDF DOCUMENTS********

1. (8 points) Indicate whether the statement is true or false and justify your answer in either

case. (Use a maximum of 1 sentence to justify.)

a) There is a consensus among health economists that socioeconomic status has a major

impact on health, but health does not have a significant effect on SES.

b) The full economic cost of medical school includes mainly tuition, room, and board for the

school.

c) Compared with doctors who are paid on a fee-for-service basis by health insurers, doctors

who are paid on a capitated (per patient) basis have incentives to provide too much care.

d) Medical arms races, since they are a form of private competition, lead to socially optimal

levels of technology acquisition by hospitals.

e) In a DRG payment system, hospitals receive payment according to the number of

services rendered.

f) Insurance represents a transfer of wealth from healthy states to sick states.

g) When insurance is fair, in a sense, it is also free.

2. (12 points) Recently, the king of the mythical nation of Pcoria was diagnosed with cancer. He

noticed that many other nobles in his court had also been diagnosed with cancer recently. He

dispatched his two best health economists to study cancer rates in Pcoria's two towns. Their

results are recorded in the table below. Before you begin, recall that Pcoria's two towns are

very different. Eastville is a poor area, home to numerous factories that produce prodigious

amounts of pollution. Weston is the home of the king's court and is filled with pristine parks

and hiking trails.

Table 1: Information from the cancer rate study commissioned by the king of Pcoria

Eastville Weston

population cancer rate population cancer rate

nobles 100 50% 900 10%

peasants 1000 40% 500 8%

a) The king's economists conclude that there is a health disparity between nobles and

peasants when it comes to cancer rates. Succinctly state the health disparity.

b) Calculate the nationwide cancer rate for nobles and the nationwide cancer rate for

peasants. What do you find?

c) This effect is called Simpson's paradox or the amalgamation paradox. Explain how the

distribution of nobles and peasants and the geography of Pcoria contribute to the

paradoxical result. Which health disparity hypothesis does this exemplify?

d) Consider the table above, which substitutes variable names for the cancer rate feeder.

Simpson's paradox occurs when the cancer rate is higher for nobles in each town but

Partial preview of the text

Download question paper exercise 2 and more Cheat Sheet Economics in PDF only on Docsity!

Health Economics Professor Ashwini Sankar Problem Set #2 Spring 2022 Due: Friday, February 18th Instructions: Please type your answers into this Word file and upload it to the problem set answer folder of the course Moodle page. Draw your diagrams by hand (use of a ruler highly recommended), take photographs of the diagrams and insert them into the file. Higher marks will be given to those who write clearly and draw precise diagrams (i.e., properly labeled, straight lines, use of color if appropriate, etc.). ********** PLEASE UPLOAD ONLY WORD OR PDF DOCUMENTS**********

(8 points) Indicate whether the statement is true or false and justify your answer in either case. ( Use a maximum of 1 sentence to justify. ) a) There is a consensus among health economists that socioeconomic status has a major impact on health, but health does not have a significant effect on SES. b) The full economic cost of medical school includes mainly tuition, room, and board for the school. c) Compared with doctors who are paid on a fee-for-service basis by health insurers, doctors who are paid on a capitated (per patient) basis have incentives to provide too much care. d) Medical arms races, since they are a form of private competition, lead to socially optimal levels of technology acquisition by hospitals. e) In a DRG payment system, hospitals receive payment according to the number of services rendered. f) Insurance represents a transfer of wealth from healthy states to sick states. g) When insurance is fair, in a sense, it is also free.
(12 points) Recently, the king of the mythical nation of Pcoria was diagnosed with cancer. He noticed that many other nobles in his court had also been diagnosed with cancer recently. He dispatched his two best health economists to study cancer rates in Pcoria's two towns. Their results are recorded in the table below. Before you begin, recall that Pcoria's two towns are very different. Eastville is a poor area, home to numerous factories that produce prodigious amounts of pollution. Weston is the home of the king's court and is filled with pristine parks and hiking trails. Table 1: Information from the cancer rate study commissioned by the king of Pcoria Eastville Weston population cancer rate population cancer rate nobles 100 50% 900 10% peasants 1000 40% 500 8% a) The king's economists conclude that there is a health disparity between nobles and peasants when it comes to cancer rates. Succinctly state the health disparity. b) Calculate the nationwide cancer rate for nobles and the nationwide cancer rate for peasants. What do you find? c) This effect is called Simpson's paradox or the amalgamation paradox. Explain how the distribution of nobles and peasants and the geography of Pcoria contribute to the paradoxical result. Which health disparity hypothesis does this exemplify? d) Consider the table above, which substitutes variable names for the cancer rate feeder. Simpson's paradox occurs when the cancer rate is higher for nobles in each town but

higher for peasants nationwide. Express these three conditions in terms of the variable means in the table. e) Use your answer from part D to prove that Simpson's paradox cannot occur if the populations of nobles and peasants are the same in both towns (that is, A=C and B=D). Table 2: Generalized version of Table 1 Eastville Weston population cancer rate population cancer rate nobles A W C Y peasants B X D Z f) Do you think Simpson's paradox might invalidate some of the evidence for health disparities cited in this chapter? Why or why not?

(12 points) (Adapted from question 7.13 in your textbook) Consider an individual whose utility function over income I is U(I), where U is increasing smoothly in I and is concave (in other words, our basic assumptions throughout this section). Let IS = 0 be this person's income if he is sick, let IH > 0 be his income if he is healthy, let p be is probability of being sick, let E[I] be expected income, and let E[U] be his expected utility when he has no insurance. a) Write down algebraic expressions for both E[I] and E[U] in terms of the other parameters of the model. b) Consider a full insurance product that guarantees this individual E[I]. Create a diagram in U-I space. Draw the individual's utility curve and the lines representing IS, IH, and E[I]. Then draw and label a line segment that corresponds to the utility gain ∆U, from buying this insurance product. Draw and label another line segment, M, which corresponds to the consumer surplus from the purchase of insurance (that is, the monetary value of the utility gain from buying insurance). c) Derive an algebraic expression for M. [Hint: you may assume that U is invertible and its inverse is U-1.] (d) Draw a graph plotting how M changes as p varies between 0 and 1. Describe intuitively why this graph has the shape that it does.
(8 points) (Please answer each sub question in not more than 2-3 sentences) Below is the abstract of the recent National Bureau of Economic Research working paper entitled “Positive and negative mental health consequences of early childhood television watching” by Waldman et al. (2012): “An extensive literature in medicine investigates the health consequences of early childhood television watching. However, this literature does not address the issue of reverse causation, that is, does early childhood television watching cause specific health outcomes or do children more likely to have these health outcomes watch more television? This paper uses a natural experiment to investigate the health consequences of early childhood television watching and so is not subject to questions concerning reverse causation. Specifically, we use repeated cross-sectional data from 1972 through 1992 on county level mental retardation rates, county level autism rates, and county level children cable television subscription rates to investigate how early childhood television watching effects the prevalence of mental retardation and autism. We find a strong negative correlation between average county level cable subscription rates when a birth cohort is below 3 and subsequent mental retardation diagnosis rates, but is strong positive correlation between the same cable subscription rates and subsequent autism diagnosis rates. Our results thus suggest that early childhood television watching has important positive and negative health consequences.”

question paper exercise 2, Cheat Sheet of Economics

Related documents

Partial preview of the text

Download question paper exercise 2 and more Cheat Sheet Economics in PDF only on Docsity!