Economic Principles Flashcards

1
Q

What is the fundamental problem of economics?

A

How to allocate resources to satisfy human wants, acknowledging that resources are scarce, resources have alternative uses, and the relative important of resources varies by person

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2
Q

Describe the production function

A

A positive relationship between health and health care with diminishing marginal returns on health from increasing health care costs

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3
Q

What can cause a pivot of the production function?

A

Exogenous shocks (Ex. New vaccine)

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4
Q

What can move you up or down the production function curve?

A

Increases in the quantity of an input

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5
Q

What is the 1st Welfare Theorem of Economics?

A

If a competitive equilibrium exists and if the prices have incorporated all relevant costs and benefits, the equilibrium is Pareto optimal

Or in English: no allocation of resources will make everyone better off without making someone worse off

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6
Q

What is the 2nd Welfare Theorem of Economics?

A

Policies can reallocate purchasing power from the best off to the worst off so that a socially desired competitive equilibrium is reached (usually via taxes and subsidies)

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7
Q

What are the two margins of redistribution for welfare?

A

Extensive margin (simply getting coverage) and intensive margin (getting more converse once you have coverage)

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8
Q

Why is linking health care to health outcomes so difficult?

A
  • self selection is rampant
  • many studies dont have randomization
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9
Q

What is a market?

A

Buyer and sellers of a given product, service, or info can interact and exchange

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10
Q

Why is it difficult to just slap the label that healthcare should be as much as people are willing to pay?

A

Patients lack info and the ability to judge underlying health, so their takes on price may not be great

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11
Q

When do you move along the supply curve?

A

When price of a good or a quantity of the good rises

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12
Q

When do you move down the demand curve?

A

When the price of a good rises

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13
Q

What does Pareto optimal mean?

A

Better in every possible way (waste minimized and economy is efficient)

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14
Q

What is a fee-for-service?

A

Each visit/treatment is reimbursed separately

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15
Q

What is pay-for-performance?

A

Providers are rewarded or penalized based on whether they met pre-determined benchmarks

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16
Q

What are bundled payments?

A

Providers receive a lump sum per episode

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17
Q

What is capitation?

A

Providers receive a lump sum per person and agree to coordinate care and meet pre-determined benchmarks for a specified period of time

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18
Q

What are some economic inefficiencies in health care?

A
  • Medical waste and low-value care
  • Employer-paid insurance premiums are tax free
  • Patients pay less than the full price
  • Medicare and Medicaid reimbursement is too low, subsidized by private insurance
  • barriers to entry (only sometimes inefficient)
19
Q

What are market failures?

A

When equilibrium price and quantity are suboptimal

20
Q

When do market failures occur?

A

When the supply and demand curves haven’t incorporate relevant info (aka externalities not taken into account)

21
Q

What are supply shifters?

A
  • input prices: land, capital, labor, taxes & regulations
  • technology
  • expectations: financial, economic, political
  • number of sellers: restricted by barriers to entry

IPTENOS - I Put Ten in my Nose

22
Q

What does perfect competition assume?

A
  • large number of buyers and sellers
  • perfect knowledge
  • free entry and exit
  • homogenous products
  • profit maximization
23
Q

What does perfect competition look like on $ and Q graphs for the market vs the firm?

A

The Market: Usual Supply Demand graph
The firm: flat horizontal line for marginal returns and a positive linear line for marginal costs that intersect

24
Q

What are demand shifters?

A
  • income
  • price of related goods
  • tastes
  • expectations
  • number of buyers: coverage expansions, aging

IRGTENOB - I really get no bitches

25
Q

What is the demand curve derived from?

A

Optimal consumption decisions from buyers seeking to maximize utility

26
Q

What are determinants of the price elasticity of demand?

A
  • the number of substitutes
  • whether the good is a necessity vs luxury
  • how you define the market
  • time horizon
27
Q

What does price elasticity measure?

A

Responsiveness of quantity to a change in price (greater than 1 is elastic, less than 1 is inelastic)

28
Q

What are types of market failures?

A
  • asymmetric information
  • free riders and the tragedy of the commons
  • discrimination
  • crony capitalism
  • externalities
29
Q

What is the tragedy of the commons?

A

Depletion and overuse of a shared resource when individuals act in their own self interest

30
Q

What is the free rider problem?

A

Benefitting from a public good without paying for it

31
Q

What is crony capitalism?

A

Businesses profit from close ties to the government, going against Free enterprise

32
Q

What is an externality?

A

Behaviors by individuals that impose costs or create benefits for others

33
Q

What is a negative externality?

A

An external cost that results in an over-provision of goods

34
Q

What is a positive externality?

A

External benefit that results in an under-provision of goods

35
Q

What is an example of a negative externality in health care?

A

Supplier-induced demand and moral hazard cause more health care utilization -> cost spread to everyone in risk pool -> higher premiums

36
Q

What is a negative supply side externality?

A

An external cost that results in an over provision of goods

37
Q

What is a positive supply side externality?

A

An external benefit that isn’t accounted for before and leads to an under-provision of goods

38
Q

What is the new supply curved labeled as after taking into account a supply side externality?

A

Social cost (private + external cost)

39
Q

What is a demand-side externality?

A

External benefit that leads to an under-provision of goods

40
Q

What is a negative demand-side externality?

A

An external cost isn’t accounted before and there is an over-provision of goods

41
Q

What is the new demand curve labeled as for a demand-side externality?

A

Social value (private value + external benefit/cost)

42
Q

What kind of market failure is caused by the free rider problem?

A

Under provision of goods

43
Q

What kind of market failure does tragedy of the commons cause?

A

Overuse