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Chapter 1 – Introduction
Key Ideas

How is health care like other goods? How is it different?

How big are the health care sectors in the United States and elsewhere?

Does economics apply to health care?
Teaching Tips

Appeal to students’ experiences. Do we buy health care in the same way that we buy
other goods? Does this apply to emergency care? to drugs? to chronic conditions?
How does health insurance enter into this?

There is a host of health related web sites available. The more durable ones include:
o National Institutes of Health (www.nih.gov/)
o Centers for Medicare and Medicaid Services, formerly the Health Care
Financing Administration, or HCFA (cms.hhs.gov/)
o Social Security Administration (www.ssa.gov/)
o Bureau of the Census (www.census.gov/)
o Center for Disease Control (www.cdc.gov/)
o Organization for Economic Cooperation and Development, for
international data (www.oecd.org/)

Nearly every daily newspaper has health reports, and there is a multitude of healthrelated web sites. Instructors may find it useful to assign a five-minute presentation
at the beginning of the class, taken either from the web or from newspapers. Students
may use presentation software or transparencies as visual aides.
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Chapter 1 – Introduction – Multiple Choice
1. Since the 1970s health care spending in the United States has risen from about ____
to about _____ percent of the Gross Domestic Product.
a.
b.
c.
d.
4; 10.
5; 13.
6: 16.
7; 18. *
2. The intrinsic value of health can be measured in terms of:
a.
b.
c.
d.
degree to which people feel better.
reduced absenteeism rates.
increased output per worker.
answers (a), (b), and (c) are correct.*
3. Rather than aggregate health expenditures, we often look at real expenditures per
capita. This calculation requires us to deflate the aggregate expenditures by:
a.
b.
c.
d.
the purchasing power of the currency.
the size of the population.
the cost of health care.
Answers (a) and (b) are correct.*
4. The following is not a measure of health outcome:
a.
b.
c.
d.
Number of physicians per capita.*
Population incidence of malaria.
Death rate for children under the age of 5.
Estimated men’s lifespan.
5. Table 1-1 in the text indicates that in 2009_____ spent the highest percentages of
their GDPs on health, whereas _____ spent the lowest percentages.
a.
b.
c.
d.
Australia and Belgium; Canada and Denmark
France and Hungary; Portugal and Spain
The United States and Netherlands; Korea and Turkey*
The United Kingdom and Sweden; Ireland and Italy
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6. The following does not represent a new technology for the provision of health care:
a. Revascularization, that is surgical procedures such as coronary bypass and
angioplasty which restore blood flow
b. Improved bandages to prevent bedsores.
c. Increased numbers of X-ray machines.*
d. Biological drug treatments for arthritis.
7. The following aggregate has not increased since 1980.
a.
b.
c.
d.
Number of hospital beds.*
Number of physicians.
Number of registered nurses.
Number of pharmacists.
8. In the United States, National Health Expenditures per capita have rose from $147 in
1960 to $8,086 in 2009. Adjusting this increase for inflation leads us to infer that
there was:
a.
b.
c.
d.
no increase in real terms.
a 235% increase in real terms.
a 660% increase in real terms.*
a 815% increase in real terms.
9. Health care expenditures have risen as a portion of the GDP in all countries because:
a.
b.
c.
d.
Populations have become less healthy.
Patients and their providers are using more expensive technologies.*
Physicians are prescribing unnecessary services.
Answers (a) and (c) are correct.
10. Table 1-2 in the text compares spending on housing, food and health care. It shows
that in the United States in 2009 the percentage expenditures, from most to least,
were:
a.
b.
c.
d.
housing; health care; food. *
health care; food; housing.
food; health care; housing.
health care; housing; food.
11. Decisions regarding health care differ from decisions regarding auto repair with
respect to:
a. the role of insurance.
b. the role of nonprofit providers.*
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c. the presence and extent of uncertainty.
d. problems of information regarding the appropriateness of the procedure.
12. Uncertainty in the health care economy suggests:
a.
b.
c.
d.
providers and their patients may not know whether treatments will be effective.
patients may wish to insure against unexpected illnesses or injuries.
Insurers may make substantial profits.
Answers (a), (b), and (c) are correct.*
13. Data from the Rand Health Insurance Experiment indicated that:
a.
b.
c.
d.
price has no impact on the utilization of health care.
increased price is related to increased use of health care.
increased price is related to decreased use of health care.*
increased price first increases, then decreases use of health care.
14. Increased coinsurance rates for prescription drugs suggest that:
a.
b.
c.
d.
those insured may buy fewer pills at a time.*
those insured may buy more drugs in advance.
drug companies will earn more money because prices will be higher.
Answers (a) and (b) are correct.
15. The growth of managed care has reduced the growth in health care costs by all but the
following methods:
a.
b.
c.
d.
reduction in preventive care.*
reduction in elective care.
reduction in inpatient care.
reduction in payments to providers.
16. The term equity refers to:
a.
b.
c.
d.
the efficient production of services.
equal treatment of all individuals.*
competition among health providers.
government provision of health care.
17. Table 1-3B suggests that between 1970 and 2009 the number of ____ per 100,000
increased by the largest percentage:
a. dentists.
b. pharmacists.
c. physicians.
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d. registered nurses.*
18. Economists view ____ as the ultimate scarce resource.
a.
b.
c.
d.
money
time*
health
answers (a) and (b) are correct.
19. Home health care for the elderly ___________ because ___________.
a. costs nothing; the caregivers are not working anyhow.
b. may be costly; caregivers must spend time providing care that they would have
allocated differently.*
c. is costly; physicians must monitor the patients.
d. is costly; the elderly need to take large amounts of prescription drugs.
20. In examining the physician shortage of the 1930s Friedman and Kuznets found that
physicians earned 32% more than dentists, although their training costs were only
17% higher. They attributed the higher returns on their investment to:
a.
b.
c.
d.
the prevalence of health insurance in the 1930s.
reduced birth rates in the 1930s.
health care planning processes implemented at the time.
barriers to entry to the medical profession.*
21. Insurance has a major impact on expenditures in the health economy. Since 1960 the
share of health expenditures paid for by third parties has risen from about ____
percent to over ___ percent.
a.
b.
c.
d.
20; 40
30; 65
45; 80*
60; 95
22. Asymmetry of information may mean that:
a.
b.
c.
d.
neither the provider nor the patient has all of the information.
the provider has more information than the patient.
the patient has more information than the provider.
Answers (b) and (c) are correct.*
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23. Figure 1-2 compares the responses of general medical care and mental health care to
coinsurance rates and finds that:
a.
b.
c.
d.
general medical care responds more to changes in coinsurance rates.
mental health care responds more to changes in coinsurance rates.*
both respond about the same.
neither type of care responds to changes in coinsurance rates.
24. In Box 1-1, the head of the Council of Economic Advisers argued that medical
expenditures were increasing around the world because of:
a.
b.
c.
d.
improved products for which people willingly pay more.*
world-wide inflation.
monopoly power among providers.
decreasing productivity among providers.
25. From one year to the next, aggregate GDP rises by 2 percent and aggregate healthcare
expenditures rise by5 percent. From this information we can infer that:
a. The health expenditure share has fallen, because health care is only a small
fraction of GDP.
b. The health expenditure share has risen, because health expenditures have risen by
more dollars than the GDP.
c. The health expenditure share has risen, because health expenditures have risen by
a greater percentage than the GDP.*
d. We have insufficient information to answer the question.
26. From one year to the next, aggregate GDP falls by 2 percent and aggregate healthcare
expenditures remain constant. From this information we can infer that:
a. The health expenditure share has risen, because health expenditures have risen by
a greater percentage than the GDP.*
b. The health expenditure share has fallen, because GDP has fallen.
c. The health expenditure share has risen, because health expenditures have risen by
more dollars than the GDP has fallen.
d. We have insufficient information to answer the question.
27. Despite the growth of government programs such as Medicare and Medicaid, by 2010
approximately _________ million Americans were without health insurance at some
time during the year.
a.
b.
c.
d.
31
50 *
63
100
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28. Under the Patient Protection and Affordable Care Act of 2010, health care
expenditures are expected, by 2020 to:
a.
b.
c.
d.
fall to 15% of GDP
rise to 20% of GDP*
rise to 30% of GDP
rise to 50% of GDP.
29. Health care for the poor is provided largely through the ____ program:
a.
b.
c.
d.
Medicare
CHIP
Medicaid
Answers (b) and (c) are correct.*
30. The US spends about twice the fraction of GDP on health care as does the United
Kingdom. The United Kingdom, however, rations care through making patients wait
for many treatment. If these waiting time costs were accounted for:
a.
b.
c.
d.
The United Kingdom fraction would be closer to the United States.*
The United Kingdom fraction would be larger than the United States.
There would be no difference in the relative fractions.
It is impossible to put a dollar value on time costs.
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