Question

1. Suppose we allocate a fixed budget for tuberculosis screening between two alternatives: screening the population generally, which has a marginal cost per test of MC_G and a marginal benefit of MB_G additional cases detected per test, and screening in homeless shelters, with a corresponding MC_S and MB_S. Assume it is currently true that MB_G/MC_G < MB_S/MC_S. Understanding that MB decreases (increases) as quantity increases (decreases) and the reverse is true for MC, we can conclude that:
   1. too much screening is being done at homeless shelters relative to general screening.
   2. too much general screening is being done relative to screening at homeless shelters.
   3. the price of screening in homeless shelters is too high.
   4. the allocation is already optimal if there is a fixed budget, because we can’t equate the ratios of marginal benefit and marginal cost.
   5. we can only make the allocation optimal if the prices can be changed

2. The largest single share of expenditures for health services in the U.S. is for:
   1. physicians.
   2. hospitals.
   3. drugs.
   4. long-term care.
   5. research.

3. If a plastic surgeon has a “sale” and reduces prices, total revenue will go up for her services if:

1. Excess demand exists.
2. Price elasticity of demand is less than one in absolute value.
3. Price elasticity of demand is greater than one in absolute value.
4. Marketing raises price elasticity of demand.
5. Marketing lowers price elasticity of demand.

Answer 1

The optimum allocation is determined where

But since in the above problem,    and the budget is constant.

Therefore, we can only make the allocation optimal, if the prices can be changed.

Therefore the answer is (E).

Ans. 2.

The largest single share of expenditure for health services in in the U.S. is for (B) Hospitals. It accounts 33 % of total health care expenditures.

Ans. 3.

If a plastic surgeon has a sale and reduces price, then total revenue will go up only when the Percentage change in services is greater than the percentage change in price. i.e, if the price elasticity of demand is greater than one in absolute value.

Therefore the answer will be C.