Sample/practice exam January 2012, questions and answers PDF

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Sample/practice exam January 2012, questions and answers...

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EC2011Health Economics 

Sample Multiple Choice Questions Coursework 1 - 2010 ____________________________________ Market for Cholesterol drugs ____________________________________ Price Quantity Demanded 10 8 6 4 2

100 200 300 400 500

Quantity Supplied 500 400 300 200 100

1. At a price of £4 per drug, demanders are willing to buy ____ units, for total expenditures of _______. a. 400; £400. b. 200; £1600. c. 300; £1800 d. 400; £1600* 2. At a price of £8 per drug, suppliers are willing to provide ____ units, for total expenditures of _______. a. 400; £3200.* b. 300; £1800. c. 200; £ 800. d. 100; £ 100. 3. As Kathy’s wealth increases: a. her total utility increases.* b. her marginal utility of wealth increases c. her average utility of wealth increases d. none of the above are true.

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EC2011Health Economics 

4. An increase in income is represented by: a. an inward rotation of the budget constraint. b. an outward rotation of the budget constraint. c. a parallel inward shift of the budget constraint. d. a parallel outward shift of the budget constraint.*

5. Given the following demand curve: Quantity Demanded = 30 – 1.5*Price a. b. c. d.

If the market price equals 6, quantity demanded equals 15. If the market price equals 8, quantity demanded equals 18. If the market price equals 12, quantity demanded equal 12. Answers (b) and (c) are correct.*

6. Given the following supply curve: Quantity Supplied = -6 +2.5 * Price. a. b. c. d.

If the price equals 3, quantity supplied will be 1 If the price equals 4, quantity supplied will be 2. If the price equals 6, quantity supplied will be 9.* If the price equals 10, quantity supplied will be 15.

7. In many cases, diabetics require the drug insulin. If they do not get it they will die. From this information, we would guess that the price elasticity of demand is approximately: a. – 20.0 b. –1.0 c. –0.5 d. 0.0* 8. If the price elasticity of physician services is –0.5, a 10% increase in price will ______. a. b. c. d.

decrease expenditures by about 5%. increase expenditures by about 5%.* leave expenditures unchanged. The answer cannot be determined.

9. Improved health increases one’s well-being because one a. b. c. d.

has more healthy time. can earn more money per hour while working. works less. answers (a) and (b) are correct.*

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EC2011Health Economics 

10.Select the correct answer: a. Hospitals are multiproduct firms because they produce the same output using several inputs. b. Hospitals are multiproduct firms because they produce several outputs using shared input levels.* c. Hospitals can clearly identify the average cost associated to each health care product they produce. d. None of the above 11.Under a capitation system for GP payment a. Physicians receive a fixed amount per each visit and there are financial incentives to minimize effort. b. Physicians receive a fixed amount per month and they maximize the effort to produce high quality services. c. None of the above. d. Physicians receive a payment per each patient registered within their practice and there may be incentives to select low risk patients.*

12.Uncertainty in the health care economy suggests: a. b. c. d.

providers and their patients may not know whether treatments will be effective. patients may wish to insure against unexpected illnesses or injuries. insurers may make substantial profits. Answers (a), (b), and (c) are correct.*

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13.Data from the Rand Health Insurance Experiment indicated that: a. b. c. d.

price has no impact on the utilization of health care. increased price is related to increased use of health care. increased price is related to decreased use of health care.* increased price first increases, then decreases use of health care.

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14.Home health care for the elderly _____ because _____. a. costs nothing; the caregivers are not working anyhow b. may be costly; caregivers must spend time providing care that they would have allocated differently* c. is costly; physicians must monitor the patients d. is costly; the elderly need to take large amounts of prescription drugs 

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EC2011Health Economics 

15.Asymmetry of information may mean that: a. b. c. d.

neither the provider nor the patient has all of the information. the provider has more information than the patient. the patient has more information than the provider. Answers (b) and (c) are correct.*

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Coursework 2 – 2010 1. Suppose a hospital is disposing hazardous waste (vials of blood, syringes and similar waste) inappropriately, that is, not following health and safety requirement. Assume the hazardous waste ends up in a public park so that it potentially becomes a risk for users of facilities in that park. Which type of externality does this represents? a. Negative supply-side externality.* b. Negative demand-side externality. c. Positive supply-side externality. d. None of the others. 2. In the figure below, which two points determine parts of the indifference curve in which the rational consumer would never purchase drugs? (pharma2) a. b. c. d.

F; G. A; B. E; F. A; F.*

  

  





 



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EC2011Health Economics

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3. In a context in which a new drug goes off patent and there is generic drug entry, which of the following statement better represents changes observed in the market? (pharma3) a. The producer of the branded drug behaves according to what Economic Theory predicts and there is an observed decrease in the branded product price. b. Both branded and generic prices converge towards the competitive price. c. Producers of branded products charge higher prices to those individuals that have inelastic demand.* d. Branded products retain a large market share despite high prices.

  !      

Initial level of wealth if not ill 20,000 Probability of illness = 0.10 Cost of treatment if ill = 10,000 U(20,000)=200 U(10,000)=140 EU(if not insured)=U(16,000)

4. In the figure above, if the probability of illness is ¼, then the expected wealth equals: a. b. c. d.

£12,500. £15,000. £17,500.* £19,000.

EC2011Health Economics 

5. In the figure above, the expected utility if the probability of illness is a. b. c. d.

" equals: #

140. 160. 180.* 200.

6. In the figure above, the certainty level of utility if the probability of illness is

" #

equals (approximately): a. b. c. d.

145. 160. 180. 197.*

7. In the figure above, suppose that Q0 = 10 visits, Q1 = 20 visits, P0 = 10, and P1 = 2. The increased expenditures due to insurance are: a. b. c. d.

£50. £100.* £200. £300.

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EC2011Health Economics 

8. Using the above graph, the consumer’s increased benefits (area under the demand curve) are:

a. b. c. d.

£120. £90. £60.* £30.

9. Using the above graph, the consumer’s welfare loss is:

a. b. c. d.

£100. £60. £40.* £20.

10.The advantage of applying cost-benefit analysis to health care interventions is:

a. b. c. d.

That it solves the problem of non-market existence That it solves the problem of having to collect all costs That it solves the problem of having to take the societal perspective None of the others*

11.If two interventions have the same effectiveness in terms of QALYs then,

a. the NHS will be indifferent in funding any of the two b. the NHS will not be indifferent* c. none of the others

12.When a new health care intervention is both cheaper and less effective than the standard care, then

a. The NHS will never fund it b. The NHS may fund it or not depending on the implicit willingness to pay per QALY* c. The NHS will not fund it if the implicit willingness to pay per QALY is less than £20,000 d. None of the others

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EC2011Health Economics 

13.When the costs and benefits of an intervention spread over several years, then

a. We should always discount the future stream of costs and benefits* b. We should only take into account the current expenses and benefits c. Discounting the future stream of costs and benefits is a matter of preference of the researcher d. None of the others

Coursework 1 - 2011 1. In the setting of the Grossman-Wagstaff model an increase in income will lead to e. no change in health input consumed. f. a decrease of health inputs consumed. g. an increase in the consumption of other goods.* h. a change in relative prices. 2. In the setting of the Grossman-Wagstaff model a decrease in income predicts that: a. individuals will have less money to spend in health inputs only b. individuals will have less money to spend in health inputs and other consumption goods* c. the price of health inputs will decrease to compensate the decrease in income d. the welfare possibility frontier will shift outwards. 3. Which of the following statements is true? a. The predictions in the Wagstaff model suggest that inequalities in health arise from inequalities in income* b. If unemployment is related to a decrease in income there will be an improvement in health because individuals can spend more time investing in their health. c. Health inequalities derived from income inequalities cannot be compensated via income redistribution. d. Income reduction affects equally to low-income groups and high-income groups 4. Within the health care market, the opportunity cost of a new treatment for Alzheimer is: a. The health forgone from a reduction in resources devoted to other treatments.* b. The health benefit obtained from the new Alzheimer treatment. c. The utility lost as a consequence of a decrease in consumption of non-health goods. d. The monetary value of the extra cost of this new treatment.

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EC2011Health Economics 

5. Researchers have computed individual income elasticities. From their results we can conclude that: a. Health care is perceived as a necessity good.* b. Health care is considered to be a luxury good. c. Health care is a necessity because generally the income elasticities found are higher than 1. d. Income elasticity at the national aggregated level shows that health care is a necessity. 6. Select the correct answer: a. Hospitals are multiproduct firms because they produce the same output using several inputs. b. Hospitals are multiproduct firms because they produce several outputs using shared input levels.* c. Hospitals can clearly identify the average cost associated to each health care product they produce. d. Hospitals are multiproduct firms because they produce the same output using shared inputs. 7. Researchers have found that income elasticities of health care demand are less than ____ at the individual level, but generally greater that ____ at the national level: a. 0; +0.5. b. +0.25; +0.5 c. +1.0;+1.0.* d. +1.0; 2.0. 8. Fractional coinsurance _____ the price elasticity of demand by _____ the out-ofpocket cost. a. increases; decreasing. b. decreases; increasing. c. increases; decreasing. d. decreases; decreasing.* 9. If the coinsurance rate increases from 0.10 to 0.15, this raises the effective price by ____. a. 0.05 percent. b. 5 percent. c. 25 percent. d. 50 percent.*

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EC2011Health Economics 

10.The adoption of new technology tends to follow a ________ distribution, and tends to be stifled by _________. $ chi-squared; competition. $ chi-squared; government regulation. $ logistic; government regulation.* $ logistic; HMO market penetration.

11.A study finds that the marginal rate of technical substitution between physicians and nurses is – 1/10. How many physicians are required to replace 20 nurses? (and still produce the same amount of output?) $ 0. $ 1. $ 2.* $ 5.

12.From one year to the next, aggregate GDP rises by 2 percent and aggregate healthcare expenditures rise by 5 percent. From this information we can infer that: a. The health expenditure share has fallen, because health care is only a small fraction of GDP. b. The health expenditure share has risen, because health expenditures have risen by more dollars than the GDP. c. The health expenditure share has risen, because health expenditures have risen by a greater percentage than the GDP.* d. We have insufficient information to answer the question.

13.If the marginal rate of technical substitution of doctors for nurses is -2, this means that: a. You can substitute one doctors for two nurses, increasing the output b. You can substitute one nurse for two doctors, increasing the output c. You can substitute one doctor for two nurses, keeping the output level constant* d. You can substitute one nurse for two doctors, keeping the output level constant

14.Technological change in health care generally involves the introduction of a new technology that is: a. Cost increasing. b. Cost decreasing. c. Cost decreasing such that input levels required increase to produce the same level of output. d. Cost-increasing or cost-decreasing depending on the technology type.*

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EC2011Health Economics 

15.Consumer choice theory assumes that individuals are rational utility maximisers. However, what happened in the case individuals consume addictive substances like alcohol and cigarettes? In the seminal paper by Becker and Murphy (1988) they discuss this scenario. Please select the statement that is correct according to them: a. Consumers can’t be rational when they consume goods that are harmful for their health. b. The assumption of rationality does not apply to addictive substances c. Addictive substances can’t be part of the utility function of a consumer and therefore they are not accounted for in the utility maximization problem that individuals face. d. Individuals that consume addictive substances are maximizing utility over time.*

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EC2011Health Economics 

Coursework 2 - 2011 1. Suppose a hospital is disposing hazardous waste (vials of blood, syringes and similar waste) inappropriately, that is, not following health and safety requirements. Assume the hazardous waste ends up in a public park so that it potentially becomes a risk for users of facilities in that park. Which type of externality does this represent? a. Negative supply-side externality.* b. Negative demand-side externality. c. Positive supply-side externality. d. None of the others. 2. In the figure below, which two points indicate those parts of the indifference curve in which the rational consumer would never purchase drugs? e. F; G. f. A; B. g. E; F. h. A; F.*   

  





 



3. In a context in which a new drug goes off patent and there is generic drug entry, which of the following statements better represents changes observed in the market? e. The producer of the branded drug behaves according to what Economic Theory predicts and there is an observed decrease in the branded product price. f. Both branded and generic prices converge towards the competitive price. g. Producers of branded products increase prices and retain demand of those individuals that have inelastic demand.* h. Branded products retain a large market share despite high prices.

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EC2011Health Economics 

4. The figure below corresponds to a person with initial level of income if not ill equal to £20,000, cost of treatment if ill is £10,000, U(20,000)=200 and U(10,000)=140. If the probability of illness is ¼, then the expected utility is: e. f. g. h.

185.* 35. 150. 194.

5. In the accompanying diagram, John _____ purchase insurance because ______. %& 

 %&

      

(

"(

)(

'

a. will purchase a limited amount of insurance to avoid some risk. b. will not purchase insurance, because the utility function pictured indicates a decreasing marginal utility of wealth. c. will not purchase insurance, because the utility function pictured indicates a constant marginal utility of wealth.

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EC2011Health Economics 

d. will not purchase insurance, because the utility function pictured indicates an increasing marginal utility of wealth.* 6. In the figure below, the decreased coinsurance rate leads to __________ total health care expenditures from _______ to _______. a. b. c. d.

increased; £8,000; £12,000.* decreased; £12,000; £8,000. increased ; £80; £100. increased; £8,000; £10,000.

.+ - *+,- 1& .

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7. In the figure above the price paid by the insured patient is:

e. f. g. h.

100. 80. 20.* 120.

8. Select the statement that is correct. a. Economic Evaluation is concerned with efficacy of interventions given limited financial resources. b. Economic Evaluation in the UK is used to rank different alternatives according to their effectiveness. c. Cost-effectiveness analysis is concerned with measurement of QALYs to choose between tow alternative interventions. d. None of the others.*

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EC2011Health Economics 

9. Over the lifetime of a drug you can identify three different periods: (1) research, testing and approval; (2) patent protection; (3) off-patent period. a. During the patent protection time, profitability is materialised after two or three years of the drug being marketed.* b. In the first period, pharmaceutical companies’ investment in R&D is very similar to their revenues. c. The net present value of an investment decision by a pharmaceutical company does not weight equally the revenues and costs arising in the third period. d. Regulation by governments on prices paid for new drugs deter firms to invest large amounts of resources in R&D.

10.Consider the table below, depicting the stages of development for a new drug. If the discount rate is 0.10, is the drug marketable?

Cost Revenue

Research 1

2

Protected 3

4

Expired 5

6

150

200

10

10

10

10

0

0

200

150

100

50

a. NPV = +15.2; the drug is profitable and should be marketed.* b. NPV = +15.2; the drug has a positive net present value, but it is not high enough to market. c. Total costs are 390 and total revenues are 500; the drug should be marketed. d. There is not enough information.

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