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MHA 710 Healthcare Economics Exam 1 (Part 2 Ch. 3 & 4) with Verified and Correctly Answered 2025-2026 Questions 100% Accurately Rated (Score A)
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A physician's office expenses increase 10%, so they decide to raise the price of office visits. Assuming the demand curve for office visits does not shift, what will happen to the total number of office visits and practice revenues? A. Office visits and total revenue stay the same if demand is elastic B. Office visits and total revenue rise if demand is inelastic C. Office visits and total revenue fall if demand is inelastic D. Office visits will fall and total revenue will rise if demand is inelastic E. Office visits will rise and total revenue will fall if demand is elastic D. Office visits will fall and total revenue will rise if demand is inelastic If a hospital is experiencing economics of scale A. its average cost curve is positively sloped as output increases B. its average cost curve is negatively sloped as output increases C. it should reduce its output level to lower costs D. quality if falling as output is rising E. both B and C are true
B. its average cost curve is negatively sloped as output increases When a physician knows more about alternative treatments than her patients, we say that ______ exists. A. rational ignorance B. perfect information C. asymmetric information D. moral hazard E. adverse selection C. asymmetric information Under which of the following circumstances is the principal-agent problem likely to be most serious? A. between general practitioners and patients B. between surgeons and patients C. between hospitals and nurses D. between dentists and physicians E. between physicians and lawyers B. between surgeons and patients
C. Selection bias Which of the following are identification strategies used by researchers to reduce selection bias in an observational study? A. Propensity score matching B. Difference-in-difference C. Synthetic control All - A. Propensity score matching B. Difference-in-difference C. Synthetic control Producing at a point at which average product is maximized and average variable cost is minimized. Economic efficiency A situation that exist when the amount of good or service demanded in the aggregate exceeds the amount available at a zero price. Scarcity
Opportunity Cost The cost of a decision based on the value of the foregone opportunity A metaphor introduced by Adam Smith describing the role that markets play in promoting the efficient allocation of resources Invisible hand A paradox in game theory where players acting in their own self-interest choose their dominant strategies and do not achieve the optimal outcome. In such cases, cooperation, not competition, will result in a more profitable outcome. Prisoner's delimma A situation that emerges when all players in a noncooperative game choose their dominant strategy and have nothing to gain (and can only lose) by changing from their initial strategies. Nash equilibrium The optimal level of output may be defined as that level of output where A. Average benefit exceeds average cost by the greatest amount B. Total benefit equals total cost
Describes how a change in the price of a good changes the quantity of a good demanded resulting from the consumer's willingness to shift demand to goods that have become relatively cheaper Substitution effect Describes how a change in the price of a good can change the quantity of a good demanded resulting from the change in the consumer's purchasing power income effect A business clarification that is exempt from paying most taxes. In return for this tax- exempt status, the firm is restricted in how any operating surplus may be distributed among its stakeholders. Not-for-profit Studies where the researcher observes the effect of a treatment on individuals without trying to influence who receives the treatment Observational study What does RCT stand for? Randomized controlled trial
A study where participants are randomly assigned into treatment and control groups. The only expected difference between the two groups is the outcome. Randomized controlled trial (RCT) As part of an experiment, the group that actually receives the treatment, sometimes called the experimental group. Treatment group As part of an experiment, the group, that receives the standard treatment, a placebo, or no treatment at all. Control group Causation indicates.... a cause and effect relationship. Indicates a cause and effect relationship; in other words, a particular action results in a specific outcome: action A causes outcome B Causation
Average treatment effect An essential assumption required to implement the difference-in-differences methodology. The outcome being studied must exhibit the same pretreatment trend in the two comparison groups. Parallel trends Required assumption that both treatment and control groups experience the same external shocks during the study period (except of course the actual treatment effect itself) Common shocks Research whose purpose is typically the commercialization of a product Applied research When there is a monopoly on the seller's side of the market and monopsony on the buyer's side Bilateral monopoly A situation in a market where there is only one buyer Monopsony
An entity that is the sole supplier in the market and has total control of the supply of the goods or services produced Monopoly A situation in which a market fails to produce the socially optimal level of output Market failure Efficiency in production, or cost efficiency Technical efficiency The situation in which producers make the goods and services that consumers desire. For every item, the marginal cost of production is less than or equal to the marginal benefit received by consumers. Allocative efficiency The number of deaths from a particular disease relative to the number of people diagnosed with the disease Case fatality rate (CFR)
A commonly used measure of market concentration comparing the market share of a firm relative to other firms competing in the same market Herfindahl-Hirschman index (HHI) A factually based statement based on opinion or ideology Positive analysis Normative analysis An economic statement based on opinion or ideology A cost or benefit that spills over to parties not directly involved in the actual transaction and is thus ignored by the buyer and seller Externality A good whose benefits are not fully appreciated by the average consumer and should thus be provided collectively Merit good
A good or service that does not, when consumed by one individual, limit the amount available to anyone else Non-rival good A good or service that is difficult to limit to a specific group of consumers. In other words, if the item is available to anyone, it becomes available to everyone. Nonexcludable good An individual who does not buy insurance, knowing that in the event of a serious illness, medical care will be provided free of charge Free rider Cost to society stemming from market failure to efficiently allocate resources. The resulting equilibrium fails to produce the socially optimum quantity of a good or service. Often caused by government actions such as taxes, subsidies, price controls, or other restrictions on the market. Dead-weight loss What is a price ceiling? A maximum price established by law, contract, or agreement.
The practice of selling the same good or service to two different consumers for different prices. The price differential is not based on differences in cost. Price discrimination Insurance coverage increases both the likelihood of making a claim and the actual size of the claim. Insurance reduces the net out-of-pocket price of medical services and thus increases the quantity demanded. Moral hazard If insurance reduces the net out-of-pocket price of medical services, what happens to the quantity demanded? It increases A situation where different parties in a transaction have access to different information that may be relevant to the exchange, placing one at a distinct advantage in the trade. Adverse selection A way to depict the relationship between the inputs in a production process and the resulting output. Production function
Literally "equal quantity". A contour line that shows the different combinations of two inputs that produce the same level of output. Isoquants What does MRTS stand for? Marginal rate of technical substituion As the amount of one input in a production process increases, the amount of the other input can be decreased without changing the level of output. Marginal Rate of Technical Substitution (MRTS) Inputs in the production process that are easily incremented. Variable inputs Inputs in the production process that are difficult to increment. Fixed inputs The period of time where all inputs are variable. Long run
A locus of points that shows the various combinations of inputs that have the same cost. Isocost curve An inferior good A. has a negative income elasticity B. is one where the demand curve shifts to the left when the income goes up C. exists only in theory D. is a low-quality good E. both A and B E. Both A and B Which of the following will NOT change the demand for office visits to the physician? A. Unusually cold and damp weather during the winter B. A change in the price of an office visit C. Layoffs at the local plant, causing a decrease in the number of people with health insurance In the community D. Television advertising by drug manufacturers to promote a new over-the-counter influenza treatment E. All these responses change the demand for office visits B. A change in the price of an office visit
Which of the following will NOT cause a shift in the medical care supply curve? A. A change in the cost of medical school tuition B. A change in the percentage of the population with health insurance C. A change in the amount of student aid available to promising undergraduate students studying biology D. A change in the number of the high-profile medical malpractice lawsuits brought against physicians increasing the premiums on malpractice insurance E. A wave of union activity that increases the average salaries of nurses nationwide B. A change in the percentage of the population with health insurance Supply curves are positively sloped because of: a. the law of increasing returns. b. the inefficient allocation of resources. c. economies of scale. d. self-interested suppliers seeking economic profit. e. the increasing opportunity cost of resources. e. the increasing opportunity cost of resources. A shortage of hospital beds will likely lead to A. an increase in the supply of hospital beds