HCM 401 MIDTERM EXAM QUESTIONS AND ANSWERS
WITH COMPLETE SOLUTIONS VERIFIED BY EXPERT
Resource Scarcity
Resource: anything useful in production or consumption
Scarcity: has alternate uses
Major problem econ. deals with; Ties to things like opportunity cost; Maid Service or Bahama vacation?
scarcity is always present even if you had infinite money time and body are scarce; time is the most
scarce resource
Rational Behavior
-making choices to achieve your goals and further your self interest/looking at the benefits and costs to
determine the largest net gain
-econ gives framework to understand rational decision-making; complete rationality is irrational; we
want to do other things and our brain wants to be efficient and take shortcuts
Asymmetric Information
, when one party in a transaction has less information than the other; ex: doctor&patient; gives the party
with more information the power to take advantage of the one with less
can react different way:
accept flawed info
reject good info
monitor performance excessively
emphasize reputation (best US surgeon)
warranty (car)
can leave health plans vulnerable to adverse selection
Marginal Vs. Total Analysis
Both are valuable tools.
Marginal Analysis focuses on additional costs associated with a certain activity to determine if the gains
would outway the additional costs. Also if eliminating that activity would decrease earnings more than it
would cut costs.
Total Analysis looks at all the costs incurred while engaging in an activity. It is composed of variable &
fixed costs. Total analysis tries to understand if you should increase or decrease an activity. Also how that
would affect revenue and costs.
Risk pooling
WITH COMPLETE SOLUTIONS VERIFIED BY EXPERT
Resource Scarcity
Resource: anything useful in production or consumption
Scarcity: has alternate uses
Major problem econ. deals with; Ties to things like opportunity cost; Maid Service or Bahama vacation?
scarcity is always present even if you had infinite money time and body are scarce; time is the most
scarce resource
Rational Behavior
-making choices to achieve your goals and further your self interest/looking at the benefits and costs to
determine the largest net gain
-econ gives framework to understand rational decision-making; complete rationality is irrational; we
want to do other things and our brain wants to be efficient and take shortcuts
Asymmetric Information
, when one party in a transaction has less information than the other; ex: doctor&patient; gives the party
with more information the power to take advantage of the one with less
can react different way:
accept flawed info
reject good info
monitor performance excessively
emphasize reputation (best US surgeon)
warranty (car)
can leave health plans vulnerable to adverse selection
Marginal Vs. Total Analysis
Both are valuable tools.
Marginal Analysis focuses on additional costs associated with a certain activity to determine if the gains
would outway the additional costs. Also if eliminating that activity would decrease earnings more than it
would cut costs.
Total Analysis looks at all the costs incurred while engaging in an activity. It is composed of variable &
fixed costs. Total analysis tries to understand if you should increase or decrease an activity. Also how that
would affect revenue and costs.
Risk pooling
