Econ 312 Problem Set 3 Fall 2023 DONE

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Jan 9, 2024

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. Explain briefly why free healthcare may not be the optimal policy to allocate healthcare resources. You may use graphs/models to assist your verbal explanations if you’d like. Figure 3.4 from workbook When healthcare is provided at no cost individuals tend to seek attention for minor or unnecessary health concerns. For example, I have Medicare from my Asperger's syndrome diagnosis, so I utilize my healthcare in all facets because I do not have to pay. My family must pay copays when they utilize services, so they are less inclined to do so. If health care was free excessive demand can strain healthcare resources. This overconsumption can strain healthcare resources and lead to misallocation of resources, as shown in Figure 3.4. Consumers may continue to demand healthcare services until the marginal product (additional health benefit) of each additional unit of care approaches zero. However, the cost involved in producing care, which encompasses expenses related to healthcare professionals, facilities, and medications does not necessarily become zero. This leads to an inefficient allocation of resources where society produces medical care beyond the point where the marginal benefit equals the marginal cost.

2. Use the demand curve graph to illustrate how the following changes would affect the demand curve for health care services at a hospital in a large city. Please also explain your reasoning for the shift of the demand curves. a. Historically low unemployment. b. Lifetime expectancy increases, which leads to a larger elderly population. c. An overall improvement in medical technology that decreased the number of inpatient needs. Historically low unemployment. a. Historically low unemployment will result in the demand curve for healthcare shifting to the right, indicating increased demand. b. The reason for this shift is that more people will have jobs, which could mean their employers offer them health insurance, making it more affordable for them to obtain health coverage. Lifetime expectancy increases, which leads to a larger elderly population. a. The demand curve would shift to the right, indicating an increase in the quantity of healthcare services demanded b. My reasoning is this population is more likely to require healthcare services, such as long-term care and specialized treatment. c. I found an interesting article online that relates to this “ at age 65, adequate access to healthcare increased life expectancy by approximately 2.0 – 2.5 years in men and women and across urban-rural areas compared with those who reported inadequate access to healthcare” ( Hao, L., Xu, X., Dupre, M.E. et al.). Price Quantity D1 D2

An overall improvement in medical technology that decreased the number of inpatient needs. a. The demand curve would shift to the left. The reason for this is that with the improvement in medical technology, decreasing the number of inpatient needs would then reduce the demand for healthcare services at a hospital in a large city. Because with the improvement more procedures and treatments could be done on an outpatient level. Reducing the demand or need for inpatients would decrease. Price Quantity D1 D2 Price Quantity D1 D2

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