MHA710 Healthcare Economics Exam 1 v3
Questions with Correct Answers and Expert
Explanation for Each Question
1. Which of the following best describes the concept of scarcity in healthcare?
A. A temporary shortage of medical supplies during a pandemic.
B. A situation where there are more doctors than patients in a specific region.
C. The inability of the government to fund universal healthcare programs.
D. The condition where human wants for health services exceed available resources.
Correct Answer: D
Expert Explanation: Scarcity is the fundamental economic problem of having
limited resources to satisfy unlimited wants. In healthcare, this means that time,
personnel, and medical equipment are finite and cannot meet every possible need.
Economists study how these scarce resources are allocated efficiently among
competing uses.
2. What does ‘opportunity cost’ represent in a clinical decision-making context?
A. The total monetary cost of a specific surgical procedure.
B. The value of the next best alternative treatment that is sacrificed.
C. The overhead expenses associated with running a hospital wing.
D. The cost of medical malpractice insurance for a surgeon.
,Correct Answer: B
Expert Explanation: Opportunity cost refers to the value of the most highly
preferred alternative that is given up when a choice is made. For example, choosing
to fund a vaccination program might mean the funds cannot be used for a new
cancer screening center. Recognizing opportunity costs is vital for maximizing
health outcomes within a budget.
3. How is the ‘Law of Demand’ typically observed in healthcare markets?
A. As the price of a service increases, the quantity demanded decreases.
B. Insurance coverage causes patients to seek less care regardless of price.
C. Doctors supply more services when the price of those services falls.
D. Demand for healthcare is perfectly inelastic regardless of the patient’s income.
Correct Answer: A
Expert Explanation: The Law of Demand states that there is an inverse relationship
between price and quantity demanded, ceteris paribus. In healthcare, if the out-of-
pocket cost for a visit increases, patients generally seek fewer consultations. This
downward-sloping demand curve is a central tenet of healthcare market analysis.
4. What is the primary difference between positive and normative economics?
A. Positive economics describes what is, while normative economics describes what
should be.
,B. Positive economics is based on ethics, while normative is based on math.
C. Normative economics uses data, while positive economics relies on intuition.
D. There is no difference between the two in a healthcare context.
Correct Answer: A
Expert Explanation: Positive economics focuses on objective analysis and factual
statements about economic behavior. Normative economics involves value
judgments and opinions about how the economy should operate. For instance,
stating that a policy will reduce costs is positive, while stating the policy is ‘fair’ is
normative.
5. In the Grossman Model, health is viewed as which of the following?
A. A pure consumption good only.
B. An exogenous factor that humans cannot influence.
C. Both a consumption good and a capital investment good.
D. A depreciating asset that cannot be repaired through medical care.
Correct Answer: C
Expert Explanation: The Grossman Model treats health as a stock that provides
utility directly as a consumption good. Simultaneously, health is an investment good
, because it increases the amount of time available for work and leisure. Individuals
‘produce’ health by combining medical care with their own time and behaviors.
6. Which factor would cause a shift in the demand curve for physician services, rather
than a movement along it?
A. A decrease in the physician’s hourly consultation fee.
B. A change in the average consumer income level in the area.
C. A rise in the price of the specific medical service being provided.
D. An increase in the supply of medical residents entering the workforce.
Correct Answer: B
Expert Explanation: A movement along the demand curve occurs only when the
price of the service itself changes. A shift in the demand curve is caused by external
factors such as changes in income, tastes, or the prices of related goods. When
consumer income rises, the entire demand curve for most healthcare services shifts
to the right.
7. If the price elasticity of demand for a drug is -0.2, the demand is considered:
A. Perfectly elastic
B. Unitary elastic
C. Elastic
Questions with Correct Answers and Expert
Explanation for Each Question
1. Which of the following best describes the concept of scarcity in healthcare?
A. A temporary shortage of medical supplies during a pandemic.
B. A situation where there are more doctors than patients in a specific region.
C. The inability of the government to fund universal healthcare programs.
D. The condition where human wants for health services exceed available resources.
Correct Answer: D
Expert Explanation: Scarcity is the fundamental economic problem of having
limited resources to satisfy unlimited wants. In healthcare, this means that time,
personnel, and medical equipment are finite and cannot meet every possible need.
Economists study how these scarce resources are allocated efficiently among
competing uses.
2. What does ‘opportunity cost’ represent in a clinical decision-making context?
A. The total monetary cost of a specific surgical procedure.
B. The value of the next best alternative treatment that is sacrificed.
C. The overhead expenses associated with running a hospital wing.
D. The cost of medical malpractice insurance for a surgeon.
,Correct Answer: B
Expert Explanation: Opportunity cost refers to the value of the most highly
preferred alternative that is given up when a choice is made. For example, choosing
to fund a vaccination program might mean the funds cannot be used for a new
cancer screening center. Recognizing opportunity costs is vital for maximizing
health outcomes within a budget.
3. How is the ‘Law of Demand’ typically observed in healthcare markets?
A. As the price of a service increases, the quantity demanded decreases.
B. Insurance coverage causes patients to seek less care regardless of price.
C. Doctors supply more services when the price of those services falls.
D. Demand for healthcare is perfectly inelastic regardless of the patient’s income.
Correct Answer: A
Expert Explanation: The Law of Demand states that there is an inverse relationship
between price and quantity demanded, ceteris paribus. In healthcare, if the out-of-
pocket cost for a visit increases, patients generally seek fewer consultations. This
downward-sloping demand curve is a central tenet of healthcare market analysis.
4. What is the primary difference between positive and normative economics?
A. Positive economics describes what is, while normative economics describes what
should be.
,B. Positive economics is based on ethics, while normative is based on math.
C. Normative economics uses data, while positive economics relies on intuition.
D. There is no difference between the two in a healthcare context.
Correct Answer: A
Expert Explanation: Positive economics focuses on objective analysis and factual
statements about economic behavior. Normative economics involves value
judgments and opinions about how the economy should operate. For instance,
stating that a policy will reduce costs is positive, while stating the policy is ‘fair’ is
normative.
5. In the Grossman Model, health is viewed as which of the following?
A. A pure consumption good only.
B. An exogenous factor that humans cannot influence.
C. Both a consumption good and a capital investment good.
D. A depreciating asset that cannot be repaired through medical care.
Correct Answer: C
Expert Explanation: The Grossman Model treats health as a stock that provides
utility directly as a consumption good. Simultaneously, health is an investment good
, because it increases the amount of time available for work and leisure. Individuals
‘produce’ health by combining medical care with their own time and behaviors.
6. Which factor would cause a shift in the demand curve for physician services, rather
than a movement along it?
A. A decrease in the physician’s hourly consultation fee.
B. A change in the average consumer income level in the area.
C. A rise in the price of the specific medical service being provided.
D. An increase in the supply of medical residents entering the workforce.
Correct Answer: B
Expert Explanation: A movement along the demand curve occurs only when the
price of the service itself changes. A shift in the demand curve is caused by external
factors such as changes in income, tastes, or the prices of related goods. When
consumer income rises, the entire demand curve for most healthcare services shifts
to the right.
7. If the price elasticity of demand for a drug is -0.2, the demand is considered:
A. Perfectly elastic
B. Unitary elastic
C. Elastic
