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    18eKeyQuestionAnswers Ch21

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    Andrea Robinson

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    18eKeyQuestionAnswers Ch21

    Uploaded by

    Andrea Robinson
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    18eKeyQuestionAnswers_Ch21

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    17 views1 page

    18eKeyQuestionAnswers Ch21

    Uploaded by

    Andrea Robinson

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    © All Rights Reserved
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    21-2 (Key Question) What are the “twin problems” of the health care industry?

    How are they


    related?
    The “twin problems” are rising prices for all and limited access (lack of insurance) for
    about 16 percent of the population (46 million). The problems are related since rising
    costs make insurance unaffordable for many individuals and families, and make it
    difficult for some businesses to insure their workers.
    21-7 (Key Question) What are the estimated income and price elasticities of demand for health
    care? How does each relate to rising health care costs?
    Income elasticity is 1.0 suggesting that health care spending will rise proportionately with
    income. Some studies indicate that it might be 1.5 in the U.S. Price elasticity is only 0.2,
    meaning higher prices for health care services will increase total health care spending.
    21-10 (Key Question) Using the concepts in Chapter 7’s discussion of consumer behavior,
    explain how health care insurance results in an overallocation of resources to the health
    care industry. Use a demand and supply diagram to specify the resulting efficiency loss.
    Health care insurance removes or greatly lessens a person’s budget restraint at the time
    health care is purchased, raising health care utility per dollar spent and causing an
    overconsumption of health care. In Figure 21.3b, insurance reduces the price of health
    care at the time of purchase from Pu to Pi, increasing the quantity consumed from Qu to
    Qi. At Qi the marginal cost of health care is represented by point b and exceeds the
    marginal benefit represented by c, indicating an overallocation of resources. The
    efficiency loss is area cab.

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