Question

Question 1

How does consumer moral hazard affect market equilibrium?

It shifts the demand curve to the right, thereby increasing both the quantity of health care used and the price of health care.

It shifts the demand curve to the right, thereby increasing the quantity of health care used, but its affect on the price of health care is ambiguous.

It shifts the demand curve to the right, thereby increasing the quantity of health care used and decreasing the price of health care.

It shifts the supply curve to the right, thereby increasing the quantity of health care used and decreasing the price of health care.

It shifts the supply curve to the right, thereby increasing the quantity of health care used, but the affect on the price of health care is ambiguous.

Question 2

How does producer moral hazard affect the market equilibrium for health care?

It shifts the supply curve to the right, thereby increasing the quantity of health care used, but the affect on the price of health care is ambiguous.

It shifts the demand curve to the right, thereby increasing the quantity of health care used, but its affect on the price of health care is ambiguous.

It shifts the demand curve to the right, thereby increasing both the quantity of health care used and the price of health care.

It shifts the demand curve to the right, thereby increasing the quantity of health care used and decreasing the price of health care.

It shifts the supply curve to the right, thereby increasing the quantity of health care used and decreasing the price of health care.

Question 3

How does adverse selection in the private health insurance market create a problem for community rating?

Insured people cannot find a doctor.

Those with very low expected costs, only, are likely to be left without insurance.

Those with very low expected costs & those with very high expected costs, are likely to be left without insurance.

It increases all of the insured people's expected health care costs.

Those with very high expected costs, only, are likely to be left without insurance.

Question 4

If there is a market failure, then it is not possible for the market to be perfectly competitive, and so, it is impossible for the market to reach an equilibrium that is efficient and socially desirable.

Why is the presence of Increasing Returns to Scale a market failure in the market for health insurance?

Average costs are decreasing, because people with high expected costs do not buy health insurance.

Average costs are decreasing, so one firm can insure everyone more cheaply than could many competing firms.

Average costs are decreasing, and so, there is an incentive for doctors to generate unnecessary demand for their own services.

Average costs are decreasing, because of supplier-induced-demand.

Average costs are decreasing, because of government interference in the market.

Question 5

Complete the following sentence.

A Natural Monopoly _________

will always charge a lower price than would be charged if the market had many firms, because of increasing returns to scale.

can only exist because of government intervention.

could never charge a lower price than could many competing firms.

exists because high fixed costs are a barrier to entry that keeps other firms from entering the market.

is a solution to the market failure of increasing returns to scale.

Answer 1

1- consumer moral hazard affect market equilibrium:

It shifts the demand curve to the right, thereby increasing the quantity of health care used, but its affect on the price of health care is ambiguous.

Consumer moral hazard means when the insured patient uses health care more than required as the prices will be paid by the insurer. The consumer moral hazard increases the quantity of health care which shifts the demand curve to right but the prices will decrease for the consumer as the prices will be paid by the insurer so the prices will decrease for the consumer but will increase for the insurer   

2- producer moral hazard affect the market equilibrium for health care

It shifts the demand curve to the right, thereby increasing both the quantity of health care used and the price of health care

Producer moral hazard occurs when uninsured consumer has to use more drugs than required due to the prescription of physicians means when physician prescribe extra drugs to consumers. It increase the quantity of health care and the prices of the health services which shifts the demand curve to right as the consumer is uninsured he has to bear all the prices.

3- adverse selection in the private health insurance market create a problem for community rating:

Those with very low expected costs & those with very high expected costs, are likely to be left without insurance.    

Because insurers does not want o give insurance to aged people while the young people don’t want insurance for themselves

4-the presence of Increasing Returns to Scale a market failure in the market for health insurance as:

Average costs are decreasing, so one firm can insure everyone more cheaply than could many competing firms

5- a natural monopoly –

will always charge a lower price than would be charged if the market had many firms, because of increasing returns to scale.