Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 4, Problem 15PAA
To determine
To draw the employee’s opportunity set and show how the opportunity set would change if the employee receives $200 worth of health insurance.
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A recent trend in health insurance is the Health Savings Account (HSA). The idea behind Health Savings Accounts is that rather than providing employees with health insurance that makes visiting doctors cost little more than a simple $10 or $20 copay the employer gives the employee money to use to spend on health care, but the employee bares the entire cost of seeing the doctor. What money given for health care not spent by the employee can be withdrawn by the employee as if it was additional income.
It is believed that Health Savings Accounts will reduce the total amount of money spent on seeing doctors. Using Supply and Demand analysis, explain why there is the expectation that HSA’s will reduce spending on doctors.
The graph below shows the budget constraint between income and leisure for an individual. The individual has a total
of 4000 hours to divide between working and leisure for the entire year. The maximum an individual could make by working
all 4000 hours is $20,000. For every hour spent in leisure, one less hour is spent working and vice versa.
Suppose that, as illustrated in the graph, a government antipoverty program guarantees the individual $10, 000 in income
per year.
As the current government support is too low to help individuals out of poverty, the government has decided to increase the
government support to $22, 000 per year. The individual is no longer motivated to work any hours as it is not possible for
him/her to make more income than the guaranteed government support.
Move the Government Support line to illustrate this outcome.
Provide your answer below:
30000
25000
(0, 20000).
20000
15000-
Government Support ($10000)
10000
5000
(4000, Q)
2000
4000
3000
Leisure (Hours)
1000…
Assume an individual's optimal bundle of health insurance (Hi) and other goods (G) is Hi=5 and G=40. Now assume Medicaid is introduced and the individual described above is eligible.
Medicaid offers a fixed bundle to the eligible: They may have 3 units of health insurance at no cost. If an individual elects to be covered by Medicaid, they cannot purchase additional health insurance; they are limited to the 3 units provided by Medicaid.
a. Does the individual described above choose to enroll in Medicaid? Usegraphs and thoroughly justify your answer.
b. Does their consumption of health insurance go up or down with theintroduction of Medicaid?
Chapter 4 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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- Suppose that you have data at the individual level that includes information on the price of a doctor visit an individual and the number of doctor visits they go to in a given year. For simplicity, let's say that those with more generous plans pay less for a doctor's visit, while those with less generous plans pay more for a visit. You graph the relationship between the price individual pays for doctor visits against the number of visits, and you see a downward sloping line; let's call this "measured demand." The problem of "endogeneity" discussed this week could arise here if individuals who know they go to the doctor frequently buy_ generous coverage while those who know they rarely go to the generous coverage. This would imply that the "measured" demand curve is doctor purchase. more elastic than the "true" demand curve. more; less more; more less; less less; morearrow_forwardmmolat 6. A central goal of the Affordable Care Act (ACA) is to significantly reduce the number of uninsured by providing a continuum of affordable coverage options through Medicaid and the Health Insurance Marketplaces. The ACA expands Medicaid coverage for most low-income adults to 138% of the federal poverty level. Following the June 2012 Supreme Court decision, states face a decision about whether to adopt the Medicaid expansion. On or before January 1, 2019, 31 states and the District of Columbia expanded Medicaid eligibility. To analyze the effect of the Medicaid expansion on private health insurance coverage, using a state-level data drawn from the 2010-18 American Community Surveys, the following difference-in-differences model was estimated controlling for all year and state effects, as well as covariates for poor, child and senior, by using the de-meaned approach. Variable name Description expansion priv_hi senior child poor st year 1 for the expansion states after Medicaid…arrow_forwardRecall that the goal of the Affordable Care Act (also known as Obamacare) legislation was get more people access to affordable health insurance. It was widely reported that health insurance premiums under Obamacare were getting much more expensive. What was the main factor causing the premiums to get more expensive? Many of the new enrollees were young teenagers unable afford their own insurance, so other people are paying for them The plan required a lot of paperwork and administrative tasks, and insurance companies had to hire a lot of people to get these tasks done The new enrollees were older and sicker than expected, increasing health care usage and expenses, causing costs and insurance premiums to rise Obamacare created new medical technologies which were expensive to usearrow_forward
- Suppose Marcus eats nothing but burritos for dinner. He buys 30 burritos each month. During the last couple of weeks, Marcus noticed a decrease in the price of burritos. The price of burritos fell from $6.00 per burrito last month to $5.75 per burrito this month. Assume that Marcus has a fixed income of $180 that he can spend on burritos. How many burritos can Marcus afford to buy at the new price of $5.75?arrow_forwardhow the concept of diminimishing matginal ulitily leads to folks allocating their income to a varied market basket of goods?arrow_forwardSuppose that consumers spend their income on either health insurance or on a“composite good”. Find the optimal bundle of health insurance (HI) and other goods (G) given the following budget constraint and utility function. How much utility does this bundle give the individual? Put HI on the x axis of any graphs. Budget constraint: 1600 = 160*HI + 20*GUtility function: U=HI*G where MRS = -G/HIarrow_forward
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