Economic Analysis Of LMICs

Question 1

Moral hazard

Answer 1

Moral hazard involves individuals or organizations changing their behavior because they are protected from the financial consequences of their actions. This may lead to individuals or organizations knowingly engaging in riskier behaviour as they are protected from any negative financial consequences.

Question 2

Present bias

Answer 2

Present bias is a cognitive bias that causes people to give stronger preference to immediate rewards over future rewards, even if the future rewards are significantly larger or more beneficial.

Question 3

Adverse selection

Answer 3

A type of market failure which occurs due to information asymetry. High-risk individuals are more likely to purchase insurance, leading to higher premiums and causing low-risk individuals to drop out, potentially collapsing the insurance market.

Question 4

Fee for service

Answer 4

A type of payment mechanism where providers are paid for each unit of service performed.

Question 5

Utility

Answer 5

The satisfaction or benefit a consumer derives from consuming a good or service.

Question 6

Cross price elasticity of demand

Answer 6

The measure of how much the quantity demanded of one good responds to a change in the price of another good. Eg. looking at the change in demand of antibiotics when the price of antipyrexials (paracetamol) goes up.

Question 7

Willingness to Pay (WTP)

Answer 7

The maximum amount a consumer is willing to spend for a good or service.

Question 8

Sunk cost fallacy

Answer 8

A phenomenon where a person is reluctant to abandon a strategy or a course of action due to previously invested resources (time, money, effort) that cannot be recovered.

Question 9

Screening effect

Answer 9

An argument in support user charges which states that applying user fees for healthcare services means that only the people who actually need it will access it, thereby deterring frivolous use.

Question 10

Salary

Answer 10

A type of payment mechanism where providers are paid a fixed payment for a period of time, irrespective of activity or performance.

Question 11

P4P

Answer 11

A type of payment method where payment is tied to performance measures.

Question 12

Actuarially fair premium

Answer 12

An insurance premium that is equal to the expected payout for the insured event, reflecting the true risk of loss.

Question 13

Loading the premium

Answer 13

Charging more than the fair premium to cover other costs . Actuarially fair premium does not account for administrative costs so insurance companies charge extra for this.

Question 14

Risk premium

Answer 14

The amount above the actuarially fair premium that an individual is willing to pay to avoid risk.

Question 15

Insurance contract

Answer 15

An agreement between the insured and the insurance provider which specifies what level of coverage is offered at price premium ( R) payed in exchange for payout (amount of coverage provided) (Q) when the insured gets sick

Question 16

Catastrophic health expenditure

Answer 16

Health ependitures that impoverish a household - defined as spending exceeding 10-25% of total income or 40% of household capacity to pay.

Question 17

Reservation wage

Answer 17

Reservation wage is the minimum acceptable compensation a worker is willing to accept employment for.

Question 18

Allocative efficiency

Answer 18

Refers to the distribution of resources in such a way that meets the needs of the population.

Question 19

Technical efficiency

Answer 19

Achieving maximum output with a given set of inputs or achieving a set output from a minimum amount of inputs.

Question 20

Labour supply

Answer 20

The total hours that workers are willing and able to work at a given wage rate.

Question 21

Demand for labour

Answer 21

The total quantity of labour that employers are willing and able to hire at a given wage rate.

Question 22

Elasticity of labour supply

Answer 22

A measure of how much the labour supply responds to a change in its wage rate.

Question 23

Compensating wage differentials

Answer 23

The more unpleasant a job, the higher the reservation wage will be (jobs with undesirable characteristics will offer a higher wage to attarct workers)

Question 24

Occupational choice model

Answer 24

Individuals select jobs based on: skills and abilities, preferences, earnings, job characteristics, human capital investment (education and training) and utility maximisation.

Question 25

Roy’s model of self-selection

Answer 25

A theory that explains how individuals choose occupations based on their own skills. The theory proposes that individuals choose jobs that align with their own characteristics and abilities because they have better information about themselves than potential employers do. In essence, individuals select themselves into jobs where they believe they will perform best and be most productive. This self-selection process leads to a more efficient allocation of labour resources, as individuals are matched with jobs that best suit their skills and preferences. They also select into roles with higher earnings and where they have a comparative advantage (higher relative efficiency) compared to others.

Question 26

Prosocial motivation

Answer 26

A behavioural trait which involves the desire to benefit others or contribute to society through one’s actions or work.

Question 27

Intrinsic motivation

Answer 27

A behavioural trait where the drive to perform an activity is derived from its inherent satisfaction or interest, rather than for some separable consequence.

Question 28

Extrinsic motivation

Answer 28

A behavioural trait where the drive to perform an activity due to external rewards or pressures: such as money, grades or approval.

Question 29

Law of diminishing marginal returns

Answer 29

The principle that adding an additional input results in smaller increases in output after a certain point.

Question 30

Market failure

Answer 30

A situation where the market fails to allocate resources efficiently on its own, leading to a loss of economic and social welfare.

Question 31

Wage rigidities

Answer 31

Wages do not adjust as easily as standard economic theory suggests. When there is more supply (workers) and not enough demand (jobs), SET states that wages would decrease as multiple workers will compete for the limited amount of jobs available. With wage rigidities, wages don’t reduce even when there’s high unemployment (many workers competing for less jobs). This can happen due to contracts, minimum wage laws, social norms or concerns about worker morale. As a result, unemployment can persist because wages don’t adjust to create a balance between the number of jobs and workers.

Question 32

Wage equilibrium

Answer 32

The wage rate where the supply of labor (workers willing to work) equals the demand for labor (jobs available).

Question 33

Credence goods

Answer 33

Goods where the quality cannot be judged or assessed by consumers before, during or after consumption and requires trust in the seller or provider.

Question 34

Time inconsistent preferences

Answer 34

When an individual’s preferences change over time, leading to decisions that may conflict with their earlier or future preferences. Eg when a person plans to save money in the future but ends up spending it when the time comes.

Question 35

Corruption

Answer 35

The abuse of power for personal gain.

Question 36

Absenteeism

Answer 36

Regular absence from work or duty without valid reason or justification.

Question 37

Informal payments

Answer 37

Unofficial payments made to access services or expedite processes and can be either in the form of cash or in-kind payment.

Question 38

Unitary model

Answer 38

An economic model of household behaviour that assumes that a household is a single decision making entity which will make decisions that maximise utility for the household.

Question 39

Collective model

Answer 39

An economic model of household decision making that recognizes that households consists of multiple members, each with their own preferences (utility function) and bargaining power.

Question 40

Ex-ante moral hazard

Answer 40

Observed change in behaviour before an event or decision takes place. (i.e., less preventive/riskier behaviours because of insurance)

Question 41

Ex-post moral hazard

Answer 41

Ex-post: observed changes in behavior or actions after an event has taken place (i.e., seek more medical services than necessary or opt for expensive treatments because of insurance)

Question 42

Second degree moral hazard

Answer 42

When the provider’s behaviour changes when they become aware that the patient has insurance coverage.

Question 43

Behavioural hazard

Answer 43

Refers to how people evaluate the true benefits of seeking care and then compare this against the price faced. Positive = overvalues the benefits of care which could lead to overutilisation. Negative = undervalues the benefits of care and underutulises it.

Question 44

Price elasticity of
demand

Answer 44

The measure of how much the quantity demanded of a good changes in response to a change in its price. Eg. looking at the change in demand of antibiotics when the price goes up.

Question 45

Theory of demand for healthcare

Answer 45

Considers health as a capital good which is the stock of health that individuals possess. It depreciates with age and increases with investment. In the model, health enters the utility function directly as a good people derive pleasure from (U=H+C+L). It also indirectly affects other components of utility (leisure and consumption of goods - eg illness makes us less productive which can affect our earnings. This will reduce our consumption of goods). Individuals want to maximise utility by consuming goods, leisure and good health.

Demand for healthcare is influenced by:
economic factors such as income (higher income typically leads to greater investment in healthcare and healthier living conditions) and prices of medical services.
Personal factors such as age, education (enabling individuals to make more informed decisions about their health and healthcare) and health behaviours.

Other factors include time preferences (present bias), accessibility of healthcare services, health insurance coverage, social/cultural factors and public health policies.

Question 46

Law of demand

Answer 46

When the price of a good decreases, then the demand for that good increases.

Question 47

Confidence interval

Answer 47

A 95% confidence interval is a range of plausible values for the true parameter (whatever is being measured) of the population of interest. If there is a 95% confidence interval, it means that we can say that there is a 95% probably that the true population estimate lies between this interval.

Question 48

P-value

Answer 48

Is a measure of how likely that the result would have occurred by random chance. Eg a p value of 0.06 means that we would observe a value as large or larger than our value with a probability of 6.6%. The smaller the value, the stronger the evidence for rejecting the null hypothesis ie there is no link between two variables.

Question 49

Regression coefficient

Answer 49

The expected change in dependent variable for one unit increase in the independent variable.

Question 50

Adverse selection author

Answer 50

Akerlof 1970

Question 51

Price elasticity of demand author

Answer 51

Marshall 1920.

Question 52

Theory of demand for healthcare author

Answer 52

Grossman 1972.

Question 53

Wage rigidities theory author

Answer 53

Keynes 1936.

Question 54

Elasticity of labour demand

Answer 54

A measure of how much the labour demand responds to a change in its wage rate.

Question 55

Risk pooling

Answer 55

Minimising risk of catastrophic health expenditure in a group by pooling funds to cover costs.

Question 56

Expected total expenditure for insurance

Answer 56

E = N x p x C