Questions from textbook: Santerre, Rexford, E., and Neun, Stephan P. Health Economics: Theories, Insights, and Industry Studies, 6th Edition, ISBN 13: 978-1-111-822729. Mason, OH: South-Western, Cengage Learning, 2013. 1. Suppose a health expenditure function is specified in the following manner: E = 500 + 0.2Y where E represents annual health care expenditures per capita and Y stands for income per capita. a. Using the slope of the health expenditure function, predict the change in per capita health care expenditures that would result from a $1,000 increase in per capita income. b. Compute the level of per capita health care spending when per capita income takes on the following dollar values: 0; 1,000; 2,000; 4,000; and 6,000. c. Using the resulting values for per capita health care spending in part B, graph the associated health care expenditure function. d. Assume that the fixed amount of health care spending decreases to $250. Graph the new and original health care functions on the same graph. What is the relation between the original and new health care expenditure functions? e. Now assume that the fixed amount of health care spending remains at $500 but the slope parameter on income decreases to 0.1. Graph both the original and new health care expenditure functions. Explain the relation between the two lines. 2. Some years ago, several researchers found a correlation between cigarette smoking and suicides. Do you think this correlation reflects an association or a causal relationship? Why? If it reflects an association, can you think of a plausible third variable? 3. Use production theory to graphically illustrate the case in which a medical innovation improves health without any change in the consumption of medical care. 4. Explain why a researcher must be careful when interpreting findings from a survey that finds a positive association between education levels and health outcomes. 5. According to Lee et al. (2009), the incremental cost-effectiveness ratio comparing the current dialysis treatment to the next least cost dialysis treatment is $61,294 per life year and $129,090 per QALY. Can you account for the different estimates? 6. The commissioner of health is concerned about the increasing number of reported cases of preventable childhood diseases, such as polio and rubella. It appears that a growing number of young children are not being vaccinated against childhood diseases as they should be. Two proposals to address the problem are sitting on the commissioner's desk. The programs have equal costs, but the commissioner has funding for only one. The first proposal involves providing free vaccinations at clinics around the country. The benefits from a free vaccination program are likely to be experienced immediately in terms of a drop in the number of reported cases of illness. The second program calls for educating young married couples about the benefits of vaccination. The benefits in this instance will not be felt for some years. The commissioner wants to use cost-benefit analysis to determine which proposal should be implemented. Explain to the commissioner the critical role the discount rate plays in determining which program is chosen. In particular, which program is more likely to be chosen if a relatively low discount rate is selected? Why? 7. Use the information below to answer the following questions. Current treatment New treatment Cost $100,000 $250,000 Effectiveness 4 life-years gained 10 life-years gained a. Calculate the ICER for the new treatment, assuming that the new treatment would replace the old one. b. How does your answer change if the cost of the new treatment equals $75,000? 8. You are employed as an economic consultant to the regional planning office of a large metropolitan area, and your task is to estimate the demand for hospital services in the area. Your estimates indicate that the own-price elasticity of demand equals 0.25, the income elasticity of demand equals 0.45, the cross-price elasticity of demand for hospital services with respect to the price of nursing home services equals 0.1, and the elasticity of travel time equals -0.37. Use this information to project the impact of the following changes on the demand for hospital services. a. Average travel time to the hospital diminishes by 5 percent due to overall improvements in the public transportation system. b. The price of nursing home care decreases by 10 percent. c. Average real income decreases by 10 percent. d. The hospital is forced to increase its price for services by 2 percent.