Pareto and insurance theory

Question 0

explain

• pareto improvement
• pareto efficient in production

Answer 0

pareto improvement : a reallocation of resources such that some individuals are made better off while no individuals are made worse off.
Production: all goods are produced with the cheapest

Question 1

what is pareto efficiency

Answer 1

making the best use ofo limited resources given people’s tastes and budget .

Question 2

when do you recieve pareto efficiency

Answer 2

when a market is perfect competitive

Question 3

which 3 conditions do you have to satisfy before achieving economic efficiency

Answer 3

efficiency in production
efficiency in product mix
efficiency in consumption

Question 4

how can you apply this conditions on the healthcare market and what does this involvee

Answer 4

producing quantity
quality and mix of health care products that bring about the greatest improvement in health,given people’s tastes and incomes

examples : running medical institutions as efficiently as possible
producing the correct mix of hc produccts
distrubuting the hc products across individuals as efficiently as possible

Question 5

what is the main purpose and what do you want to achieve with pareto .

Answer 5

you want to achieve the greatest improvement in health
technical efficiency : you hire 6 nurses and you want to use them all 5 as efficient as possible to do the work
factor price efficiency : you also want the technique you choose is the cheapest one

Question 6

why do producers on the competitive market have to produce on the ppf

Answer 6

otherwise they will not survive on the market.

what they could try is to produce more efficient for example a bakery. so a ppf can push people to produce as efficient as possible

Question 7

what is the marginal cost

Answer 7

it is the cost of producing one extra unit of goods

Question 8

what is the marginal satisfaction

Answer 8

the satisfaction you get because you produce one extra unit of good

Question 9

what are different ways of organizing health care financing

Answer 9

social health insurance ( taxes)
privat health insurance ( private insurers,individual contribution
medical saving accounts :
out of pocket model

Question 10

explain the principal agent problem

Answer 10

one party ( agent ) is expected to act in anothers ( principal ) best interest ,but agents own best interest may differ from the principals best interest. There is a relation asymmetry between the principal and agent.

Question 11

what are the pre conditions for insurance

Answer 11

1. population of insured shsould be large enough
2. individuals need to be risk avers
   3.
   4.

Question 12

How can you tell that if a point is Pareto optimal

Answer 12

Note 1: A Pareto optimal allocation is not unique. All points on CC are Pareto optimal.

Note 2: Pareto optimality says nothing about equity: 
The origins are Pareto optimal despite one consumer being completely destitute.

Question 13

What is the pareto optimum principle

Answer 13

no individual could be made better off without making at least one individual worse off then we are in what is called a Pareto Optimum

Question 14

It is possible to have a Pareto efficient allocation in which someone is worse off than he
is at another allocation that is not Pareto efficient.

True or false? and why?

Answer 14

True, it is possible for someone to be worse off in a Pareto efficient allocation then they would have been in a Pareto inefficient allocation.

Imagine an economy with10 apples .
There are also two people, A and B, who each consume the apples.

situation1:for some reason (there could be many), A has 7 apples and B has 1, not all apples have been utilized.

situation 2: A has 5 apples and B also has 5 apples. Now all resources have been utilized and a Pareto efficient outcome has been reached.

clearly in the second situation, individual A is not better off even though the economy is now operating more efficiently.

Question 15

A Pareto efficient outcome may not be good, but a Pareto inefficient
outcome is in some meaningful sense bad.”
(a) (5 points) Give an example or otherwise explain, as if to a non- economist, the first part of this sentence, “A Pareto efficient outcome may not be good

Answer 15

because of equity concerns or other considerations.

example, it would be Pareto efficient for Bill Gates to own everything but we might not find these to be very appealing resource allocations.

Question 16

b) (5 points) Give an example or otherwise explain, as if to a non- economist, the second part of this sentence, “A Pareto inefficient outcome is in some meaningful sense bad.”

Answer 16

A Pareto inefficient allocation is in some meaningful sense bad be- cause it’s possible to make someone better off without making any- body else worse off, so why not do it?

Question 17

e. Give a definition of Pareto efficiency in output mix

Answer 17

.

The producers produce the combination of products that the society wants to consume.

Question 18

g. Show in which direction the PPF of question d shifts if a better technology for producing aspirin becomes available.

Answer 18

It will shift outside

Question 19

What does MRT means

Answer 19

Marginal rate of transformation (MRT) = Relative marginal costs of two goods.
MRT= good1: good2

Question 20

What is pareto efficiency in consumption

Answer 20

the consumers should allocate their income in a way that maximizes their utility, given their income and the prices of the goods they buy.

Question 21

What is pareto efficiency in product mix

Answer 21

Product mix; optimal combination of goods that firms wants to produce and that consumers want to consume. Show as a point on the PPF. Between consumers and producers.

Question 22

How to get a efficient health care market?

Answer 22

Producing the quantity, quality and mix of health care products that bring about the greatest improvement in health, given people’s tastes and incomes.

Question 23

What is the difference between mrs and mrt

Answer 23

(MRS): Marginal Rate of Substitution (MRS) is the slope of the indifference curve, the exchange of 2 goods along the

• Marginal Rate Transformation (MRT): The MRT is a measure of the relative marginal costs (MC) of the two goods. = -price good1/price good 2

Question 24

Does pareto says something about equity

Answer 24

No ,only about equal distribution of goods