MHA710 | MHA710 Healthcare Economics Exam 1
v2 Questions with Correct Answers and Expert
Explanation for Each Question
1. Which economic concept explains why individuals must make choices regarding
health interventions with limited budgets?
A. Market Equilibrium
B. Positive Externality
C. Scarcity
D. Monopoly Power
Correct Answer: C
Expert Explanation: Scarcity is the fundamental economic problem where
resources are limited but human wants are unlimited. In healthcare, this means that
money and time spent on one treatment cannot be used for another. This concept
forces policymakers and patients to prioritize interventions based on their value
and cost.
2. What does the ‘Opportunity Cost’ of a medical procedure represent?
A. The value of the next best alternative use of those resources
B. The cost of the medical equipment used
C. The total out-of-pocket cost paid by the patient
,D. The tax revenue lost by the hospital
Correct Answer: A
Expert Explanation: Opportunity cost refers to the benefits an individual or society
misses out on when choosing one alternative over another. For instance, the
opportunity cost of funding a new cancer drug might be the missed opportunity to
fund a community vaccination program. Understanding this helps healthcare
managers make more efficient resource allocation decisions.
3. In the context of health economics, what does the Production Possibility Frontier
(PPF) illustrate?
A. The minimum profit a hospital can make
B. The maximum combinations of two goods that can be produced with given
resources
C. The rate at which people age
D. The total number of patients a doctor can see in a day
Correct Answer: B
Expert Explanation: The PPF shows the trade-offs between producing different
types of goods, such as healthcare and education. Points on the curve represent
efficient utilization of resources, while points inside represent inefficiency. It
,visually demonstrates that to get more of one good, a society must usually give up
some of the other.
4. Which of the following is an example of ‘Normative Economics’?
A. A study showing that higher copays reduce doctor visits
B. The observation that the U.S. spends 18% of GDP on healthcare
C. The statement that the government should provide universal healthcare
D. A report on the number of uninsured citizens
Correct Answer: C
Expert Explanation: Normative economics involves value judgments and opinions
about what ought to be rather than what is. Positive economics, by contrast, focuses
on objective analysis and empirical facts. Saying a government ‘should’ provide care
is a subjective policy goal based on social values.
5. If the price of a prescription drug increases and the total revenue for the drug
company also increases, the demand for the drug is likely:
A. Elastic
B. Perfectly elastic
C. Unitary
D. Inelastic
, Correct Answer: D
Expert Explanation: Inelastic demand means that consumers are not very sensitive
to price changes, often because the good is a necessity. When demand is inelastic, a
price increase leads to a less than proportionate drop in quantity demanded,
causing total revenue to rise. Many life-saving medications exhibit this characteristic
because patients have no substitutes.
6. Which of the following would cause a ‘shift’ in the demand curve for healthcare,
rather than a movement along it?
A. A decrease in the price of doctor visits
B. An increase in the supply of nurses
C. A change in consumer income
D. A reduction in the cost of medical insurance premiums
Correct Answer: C
Expert Explanation: A movement along the demand curve is caused strictly by a
change in the price of the service itself. A shift in the demand curve is caused by
external factors such as changes in income, tastes, or the prices of related goods. If
consumer income rises, people are generally willing to purchase more healthcare at
every price level.
v2 Questions with Correct Answers and Expert
Explanation for Each Question
1. Which economic concept explains why individuals must make choices regarding
health interventions with limited budgets?
A. Market Equilibrium
B. Positive Externality
C. Scarcity
D. Monopoly Power
Correct Answer: C
Expert Explanation: Scarcity is the fundamental economic problem where
resources are limited but human wants are unlimited. In healthcare, this means that
money and time spent on one treatment cannot be used for another. This concept
forces policymakers and patients to prioritize interventions based on their value
and cost.
2. What does the ‘Opportunity Cost’ of a medical procedure represent?
A. The value of the next best alternative use of those resources
B. The cost of the medical equipment used
C. The total out-of-pocket cost paid by the patient
,D. The tax revenue lost by the hospital
Correct Answer: A
Expert Explanation: Opportunity cost refers to the benefits an individual or society
misses out on when choosing one alternative over another. For instance, the
opportunity cost of funding a new cancer drug might be the missed opportunity to
fund a community vaccination program. Understanding this helps healthcare
managers make more efficient resource allocation decisions.
3. In the context of health economics, what does the Production Possibility Frontier
(PPF) illustrate?
A. The minimum profit a hospital can make
B. The maximum combinations of two goods that can be produced with given
resources
C. The rate at which people age
D. The total number of patients a doctor can see in a day
Correct Answer: B
Expert Explanation: The PPF shows the trade-offs between producing different
types of goods, such as healthcare and education. Points on the curve represent
efficient utilization of resources, while points inside represent inefficiency. It
,visually demonstrates that to get more of one good, a society must usually give up
some of the other.
4. Which of the following is an example of ‘Normative Economics’?
A. A study showing that higher copays reduce doctor visits
B. The observation that the U.S. spends 18% of GDP on healthcare
C. The statement that the government should provide universal healthcare
D. A report on the number of uninsured citizens
Correct Answer: C
Expert Explanation: Normative economics involves value judgments and opinions
about what ought to be rather than what is. Positive economics, by contrast, focuses
on objective analysis and empirical facts. Saying a government ‘should’ provide care
is a subjective policy goal based on social values.
5. If the price of a prescription drug increases and the total revenue for the drug
company also increases, the demand for the drug is likely:
A. Elastic
B. Perfectly elastic
C. Unitary
D. Inelastic
, Correct Answer: D
Expert Explanation: Inelastic demand means that consumers are not very sensitive
to price changes, often because the good is a necessity. When demand is inelastic, a
price increase leads to a less than proportionate drop in quantity demanded,
causing total revenue to rise. Many life-saving medications exhibit this characteristic
because patients have no substitutes.
6. Which of the following would cause a ‘shift’ in the demand curve for healthcare,
rather than a movement along it?
A. A decrease in the price of doctor visits
B. An increase in the supply of nurses
C. A change in consumer income
D. A reduction in the cost of medical insurance premiums
Correct Answer: C
Expert Explanation: A movement along the demand curve is caused strictly by a
change in the price of the service itself. A shift in the demand curve is caused by
external factors such as changes in income, tastes, or the prices of related goods. If
consumer income rises, people are generally willing to purchase more healthcare at
every price level.
