econ215_pset4

pdf

School

University of Illinois, Chicago *

*We aren’t endorsed by this school

Course

215

Subject

Economics

Date

Feb 20, 2024

Type

pdf

Pages

Uploaded by MasterTarsierMaster614

University of Illinois at Chicago Department of Economics Carmen Anthony Esposito, M.S. ECON 215: Health Economics Problem Set #4 This assignment is graded out of 100 points. Submit your assignment to Blackboard as a single PDF by 11:59pm on November 28, 2023. If you are handwriting your assignment, it might be easier to take pictures then use www.combinepdf.com to convert the pictures into a PDF. You may also type your assignment. In order to receive full-credit, you must provide a correct answer and show all necessary work or provide a detailed explanation. You may work with other people, but you must submit your own writeup and mention your partners on your submission. Illegible solutions will not be graded. Grading: Three exercises will be randomly selected and graded. The rest of the exercises will be taken for completion points only. Exercise 1. Consider in city of Shadyland where there are five hospitals. Use the table below to answer the components of this exercise. Hospital Admission s Market Share (%) Square Arrigo Hospital 5500 32.26 1040.71 Bhandari Hospital 4500 26.39 696.43 Esposito Hospital 3000 17.60 309.76 James Hospital 900 5.28 27.88 Juneau Hospital 150 .88 .77 Phan Hospital 3000 17.60 309.76 1. Complete the table above. [10] 2. Calculate the HHI. [5] HHI=1040.71+696.43+309.76+27.88+.77+309.76=2385.31 3. Interpret the HHI. [5] The HHI value of 2385.31 indicates that the hospital market in Shadyland is moderately concentrated. A value below 1500 suggests a competitive market, while a value above 2500 suggests a highly concentrated market. 4. In class, we discussed that hospital services markets have become increasingly concentrated over time (less competitive) due to mergers and consolidations among hospitals. How do the results in this exercise compare the the empirical research?

Think about why they might differ. [5] The exercise's results align with empirical data suggesting that hospital markets have grown more concentrated over time as a result of hospital mergers and consolidations. The exercise's HHI value indicates that Shadyland's hospital market is moderately concentrated, which is kind of not in line with the industry trend of rising concentration. It's crucial to remember that the exercise's findings are based on a specific city and could not be indicative of hospital markets in other places. Furthermore, it's possible that the market share numbers employed in this experiment do not fairly represent the competitive dynamics of the hospital sector. Exercise 3. Dr. Smith is a cardiologist who produces medical care in a monopolistically competitive market. Assume the following. • The weekly demand for Dr. Smith’s services is given by �� = 100− �� (hint: for graphing purposes with �� (i.e. price) on the vertical axis and quantity (i.e. patients) on the horizontal axis, the inverse demand curve is �� = 100− �� ). • Marginal Revenue is twice as steep as demand, so �� = 100−2 �� . • Dr. Smith’s total cost of producing medical care is given by �� = 100 + 20 �� + �� 2 and marginal cost of producing medical care is given by �� = 20+2 �� . 1. To maximize profit, how many patients will Dr. Smith see each week? [5] MR = 100-2Q MC = 20 +2Q In equilibrium, MR = MC 100- 2Q = 20 +2Q 80=4Q 20 = Q 2. To maximize profit, what price will Dr. Smith charge per office visit? [5] P = 100 - Q = 100 - 20 = 80 3. What is Dr. Smith’s short run weekly profit? [5] TR = P x Q = 100Q - QxQ = 100 x 20 - 20 × 20 = 2,000 - 400 = 1,600 Now TC= 100+ 20Q+Q² = 100 + 20 x 20 + 20 × 20 = 100+ 400 + 400 = 900 T=TR-TC = 1,600-900 = 700 4. Show Dr. Smith’s short run profit on a graph (draw demand, MR, MC, ATC, TR, TC, and Profit). [10] 5. What will happen to Dr. Smith’s demand curve in the long run? Will Dr. Smith be able to

make the same weekly profits in the long run? Why or why not. [5] Because the firm is making abnormal profits in the short term, the demand curve under monopolistic competition earns normal profit over the long term. Another company enters the market as a result of the quick profit. After then, there is competition and a division of the market among firms. As output increases in the market, prices decline and it eventually reaches cost equality. As a result, the company makes extranormal profits in the short term but just normal profits over the long term. Exercise 4. Cigarette smoking imposes costs on non-smokers. The following functions show the effect of cigarette smoking on resource allocation: �� = 10− �� = 6− �� = �� = �� 1. Is the externality from the demand side or supply side? Briefly explain. [5] Since MPC = MSC, there is no supply-side externality. Since MPB and MSB are different, there is demand side externality. (Negative externality) Plus since it is an externality on the consumption side it is an externality on demand side. 2. Draw benefit and cost curves. Calculate to find two equilibrium quantities of cigarettes. [5] Private market equilibrium, MPB = MPC Social optimal, MSB = MPC 10 - Q = Q2Q = 10 Q = 5 P = 5 6 - Q = Q 2Q = 6 Q = 3 P = 3 3. Which quantity of cigarettes is inefficient from a societal perspective? Which quantity of cigarettes is efficient from a societal perspective? [5]

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

From a societal perspective, the market equilibrium quantity (Q=5) is inefficient as it leads to overproduction, and the social optimal quantity (Q=3) is efficient as it considers externality. 4. Government plans to impose an excise tax (per unit tax) on cigarette manufacturers. Illustrate how this can promote an efficient amount of cigarette consumption. [5] Putting a tax would make people pay more than they were at market equilibrium, this would discourage fewer people from consuming as many cigarettes as before.The quantity of cigarettes consumed would now fall from market equilibrium to socially optimal because of tax. Exercise 5. For the following questions, please refer to Table 5.6 excerpted from the chapter "The Demand for Cocaine and Marijuana by Youth" (Frank J. Chaloupka, Michael Grossman, and John A. Tauras) in the NBER volume The Economic Analysis of Substance Use and Abuse: An Integration of Econometrics and Behavioral Economic Research, University of Chicago Press, 1999. 2 Panels A and C reports the price elasticity of demand for cocaine use in the past year Panels B and D report the price elasticity of demand for cocaine use in the past month The elasticity for "Participation" refers to whether someone used cocaine at all (in the past year or the past month) and the elasticity for "Conditional use" refers to the

number of occasions of cocaine use, among those who used cocaine (in the past year or the past month). The elasticity for "Total" refers to overall cocaine use among all individuals in the sample (users and nonusers). Answer the prompts below. 1. Does the estimate of overall price elasticity of demand for cocaine from Model 2, panel A, suggest that demand is elastic or inelastic? Briefly explain. [5] The given elasticity in Model 2, Panel A, is −1.268. Since this value is greater than 1 (in absolute value), we can conclude that the demand for cocaine is elastic. 2. Do the estimates from Table 5.6 suggest that youth demand for cocaine among cocaine users is elastic or inelastic? Is this what one might expect? Briefly explain. [5] All these elasticity values are less than 1 (in absolute value), indicating that youth demand for cocaine among cocaine users is inelastic. This is somewhat expected, as individuals already engaged in cocaine use may be less sensitive to price changes due to factors such as addiction or habituation. 3. Compare the participation elasticity for past-year use vs. past-month use for Model 2, Panels A and B. Given the differences in the time horizon, are these elasticities what one might expect? Briefly explain. [5] The participation elasticity for past-month use is slightly larger in absolute value than the participation elasticity for past-year use. This is in line with expectations, considering the differences in time horizons, indicating that individuals tend to be more responsive to price changes when considering a shorter time period (past-month use). 4. If fines for cocaine possession increased such that the price of cocaine doubled, what would be the percentage change in quantity demanded of cocaine among cocaine users according to the estimate in Model 2, Panel A? [5] If fines for cocaine possession increase, resulting in the doubling of the price of cocaine, the estimated elasticity for "Conditional Use" among cocaine users in Model 2, Panel A (-0.875), implies that the quantity demanded among cocaine users would decrease by approximately 87.5%. This substantial reduction reflects the sensitivity of current users to changes in price, indicating that higher fines and increased prices would significantly discourage cocaine consumption among those already engaged in its use. 5. The overall price elasticity of the demand for cocaine among adults was -0.5, about half of that for young people. If policymakers increased the sanctions for cocaine possession, thereby raising the price of cocaine, would this price change have a greater effect on adults or on youths? Briefly explain. [5] The elasticity for adults is -0.5, indicating inelastic demand. The elasticity for youths is -1.268, indicating elastic demand. Increasing sanctions and raising the price of cocaine would likely have a greater effect on youths compared to adults. The more elastic demand among youths suggests that they are more sensitive to changes in price, potentially leading to a larger reduction in cocaine consumption compared to adults.

Related Documents

Airbus vs Boeing Product Strategy Paper.docx

to the Financial Forecast for this company.docx

econ215_pset3(1) (2).pdf

3.pdf

Exercise 2 MLR Intro v13.pdf

assign7.docx

MBAF-504-TEAM-PROJECT.odt

Page 2.1.3 The Ghost Map- Other social reformers of the period.docx

Recommended textbooks for you

Economics:

Economics

ISBN:9781285859460

Author:BOYES, William

Publisher:Cengage Learning

Microeconomic Theory

Economics

ISBN:9781337517942

Author:NICHOLSON

Publisher:Cengage

Economics Today and Tomorrow, Student Edition

Economics

ISBN:9780078747663

Author:McGraw-Hill

Publisher:Glencoe/McGraw-Hill School Pub Co

Microeconomics: Private and Public Choice (MindTa...

Economics

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:Cengage Learning

Economics: Private and Public Choice (MindTap Cou...

Economics

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:Cengage Learning

Principles of Economics 2e

Economics

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:OpenStax

SEE MORE TEXTBOOKS

Recommended textbooks for you

Economics:
Economics
ISBN:9781285859460
Author:BOYES, William
Publisher:Cengage Learning
Microeconomic Theory
Economics
ISBN:9781337517942
Author:NICHOLSON
Publisher:Cengage
Economics Today and Tomorrow, Student Edition
Economics
ISBN:9780078747663
Author:McGraw-Hill
Publisher:Glencoe/McGraw-Hill School Pub Co
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax