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Health Economics At equilibrium, Quantity Supplied, Qs= Quantity Demanded, Qd Qd=100-P and Qs=40 40=100-P P*=60 Q*= the quantity exchanged when the market is in balance =100-60=40 units License is a form of taxation. Total quantity supplied, and thus demanded at equilibrium =40 If the license for 20 is available, the welfare loss to the society is equivalent to the amount that would have been taxed, but not taxed. =20*60 =1200 2 Income Elasticity of NHE, Ed= ∆Qh/∆Y=1 (15,000-12,000)/∆Y=1 ∆Y=$3,000 Thus, the increase in the health care spending will be $3,000 3- State of Nature probability Flu 1 .2 Flu 2 .5 Flu 3 .3 Utility from three different Vaccines A Expected Utility of A B Expected Utility of B C Expected Utility of C -5 (0.2*-5)=-1 -20 (0.2*-20)=-4 15 (15*0.2)=3 8 (0.5*8)=4 10 (10*0.5)=5 10 (10*0.5)=5 15 (15*0.3)=4.5 40 (40*0.3)=12 7 (7*0.3)=2.1 Total 7.5 13 10.1 Total Expected Utility=7.5+13+10.1 =30.6 SD=Root of ∑dx2/n Consider the table below x dx dx2 7.5 2.7 7.29 13 -2.8 7.84 10.1 0.1 0.01 Total 30.6 15.14 Arithmetic Mean=30.6/3=10.2 SD=root of 15.14/3 =2.2465 4.0 1. U=E(U)-∂2 This is a risk loving utility function because as wealth increases hold a smaller percentage of wealth in risky assets 2. U=E(U)/∂2 This is a risk-averse utility function because any utility function that increases in its argument, i.e. wealth, and must have a positive first derivative - this comes from the property of monotonicity. 3. U=E(U) This risk neural utility function because a risk neutral utility function has a linear equation of the utility, thus as wealth increases, hold the same percentage of wealth in risky assets. 4.1 Vaccine B has the highest utility value thus will select each of the individuals analyzed above 5. Basing on the utility functions, a. Ask as many extra additional exams as possible U=E (U) Fee-for-service payment structure, to obtain better value for investments made in health care b. Increase the time between visits U=E (U)-∂2 Volume over value payment structure c. Reduce hospital utilization? U=E (U)-∂2 Fee-for-service payment structure, to obtain better value for investments made in health care d. Not attend a patient and send him\her directly to a specialist U=E (U)/∂2 Fee-for-service payment structure that increases the cost due to increased time 6 6.1. A 10% health insurance is aimed at increasing supply and demand of healthcare. In an inelastic demand and supply of healthcare, a 1% change in the price of the service has less than a 1% change on the healthcare demanded or supplied (Morris, p. 15). Thus, if the cost of healthcare is $100 for instance, then, in the short-run, the total health expenditure would be, 90*100/100 $90 The total health expenditure will reduce by a small margin, a less than 1% of the increase in the healthcare insurance. 6.2. The law of health demand and supply state that as the cost of health tend to be flexible, for instance, increasing the number of people with insurance means easing the cost of health technically, the demand for healthcare increases, supply may be affected and the salary of the physicians may reduce. 6.3 Immigration laws in this case fix supply of health physicians, thus the cost of health may be held constant or increases depending on the nature of the public response. However, the salaries of the local physicians are deemed to increase. 7 - Consider an insurance company that offers “standard” contracts with a premium r=$100 and a payout q=$500 to anyone who will purchase it. 7.1. The contract has a premium, r of $100 A base payout, q, of $500 Peter’s healthy state income is $500. The likelihood of getting sick is 0.1. In this case, the standard contract is not fair for Peter. However, if he ends up sick, his final income will be negative, -$100 7.2 With an IH=$500 and IS-$0, Tim is in the same income bracket with Peter. However, Tim’s likelihood of getting sick is 0.2. The standard contract is a little fair for Tim than for Peter. Although Tim’s expected income is to be affected negatively after purchasing the standard contract, Kim’s rate of getting may meet that. 7.3 With an IH=$1,000 and IS=$0, and considering that the probability of getting sick is 0.2, the standard contract is full for Jay. 7.4 Ronald’s case is almost the same as Peter’s. The contact is partial but favors the insurance company. Considering that IH>IS, then, the possible value of the situation would be, IH= $600 IS=$0 and P=0.1 Works Cited Morris, Charles R. "The Economics of Health Care." Commonweal 132.7 (2005): 12-17. Literary Reference Center Plus. Sloan, Frank A, and Chee-Ruey Hsieh. Health Economics. Cambridge, Mass: MIT Press, 2012. Print. Wonderling, David, Nick Black, and Reinhold Gruen. Introduction to Health Economics. Maidenhead [u.a.: Open Univ. Press, 2005. Print.

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