PART A: MULTIPLE CHOICE (Correct choice is presented in bold text)

1. [2 marks] Which of the following is not a valid example of how health care is different from most other economic goods?

a) Prices do not influence demand

b) Large presence of non-profit firms

c) Presence and extent of uncertainty

d) Role of equity and need

2. [2 marks] QALYs are a means of quantifying the benefits of a medical intervention that takes both the quantity and quality of life lived into account. QALYs are used in   which type of economic evaluation?

a) Cost-Benefit Analysis

b) Cost-Effectiveness Analysis

c) Cost-Minimization Analysis

d) None of the above

3. [2 marks] “Allocate different amounts of goods to those who are differentially situated with respect to the relevant characteristics” is an example of

1. Horizontal equity

2. Vertical equity

3. Procedural equity

4. Inequity

4. [2 marks] If good X is more elastic than good Y then good X’s demand curve must be:

a) Steeper than good Y’s demand curve

b) Flatter than good Y’s demand curve

c) Can be flatter or steep than good Y’s demand curve

d) Equal in slope to good Y’s demand curve

5. [2 marks] Which of the following is not a determinant of a consumer’s demand for coffee?

a) The price of coffee

b) The price of tea

c) The price of cream/milk

d) All of the above are determinants of demand for coffee

6. [2 marks] A regression is run between health status and education. It is found     that the education variable of “number of years of schooling” has a p-value of 0.99. We can conclude:

a) People in the sample have a higher probability of going to school

b) The average person in the sample has approximately 0.99 years of schooling

c) That the number of years of schooling is significantly positively correlated to health status

d) That the number of years of schooling is not significantly correlated to health status

7. [2 marks] Informational asymmetry in the market for health care services refers to:

a) the fact that a health care provider has more knowledge than does the patient regarding what care will be effective in correcting the patient’s health problem

b) the inherent uncertainty associated with the effectiveness of health care services

c) the fact that those without insurance pay more for health care than do those with insurance

d) the fact that patients often do not know the wait times to get a service from different physicians

14) Consider an elastic demand for health capital, a small increase in depreciation rate will cause:

a) A large reduction in optimal level of health

b) A small reduction in optimal level of health

c) A large increase in optimal level of health

d) A small reduction in optimal level of health

15) If the relationship between income inequality and health is spurious

a) It makes sense to advocate for policies that redistribute income in an effort to improve population health

b) reducing income inequality should not be advocated as a policy to improve the health status of the population

c) Resources should be spent to improve access to quality education.

d) None of the above is true

PART B: TRUE/FALSE WHY QUESTIONS

1. [6 marks] The criterion of “portability” under the Canada Health Act refers to the fact that the provincial health insurance plan must cover non-residents who are      visiting the province.

True False Why?

False. The criterion of “portability” refers to the fact that the provincial health insurance plan must cover provincial residents, even when they are out-of-province. There is no principle that non-residents should be covered by a provincial health insurance plan.

2. [6 marks] An efficiently cost-effective allocation of productive resources must also be technologically efficient.

True False Why?

True. The definition of a cost-effective allocation is one that achieves the lowest-cost technically efficient allocation with no wasted resources. All cost-effective allocations

are required to be technically efficient and on the PPF to be relevant otherwise one could lower costs by moving to a irrelevant technologically inefficient point inside the

PPF.

3. [6 marks] A new cough medicine appears on the market with the same properties and effectiveness as the existing cough medicine only the new medicine is offered at a          lower price. We would expect the demand curve for the existing medicine to shift to         the left because the two goods involved are complements.

True False Why?

False. It is true that we would expect the demand for the existing medicine to shift left because some people would change from purchasing the existing medicine to purchasing the new cough medicine. This would cause demand to be lower for the existing medicine. However this shift to the left is caused because the two medicines are substitutes (they provide the same service/use to consumers) not because they are complements (they are not consumed together).

4. [6 marks] More education is correlated with better health because people with “long time horizons” with preferences for the future tend to invest in both. Therefore we        should increase subsidies to education in order to increase health.

True False Why?

False. If the two are correlated then one does not necessarily cause the other, so increasing education may not cause an increase in health. The conclusion could be to induce people to consider longer time horizons (increase their preference for the future) instead of subsidizing their education. Education subsidies would be expected to increase health if the affect was causal, like the theory that educated people produce health more efficiently.

PART C: SHORT ANSWERS

5. Consider the demand equation for good X estimated by linear regression,                 Qx=1000 - 3.3Px + 0.2Pz + 0.001Y, where Qx is quantity demanded, Px is the price of the good in question, Pz is the price of another good Z and Y is income. Assume that   the t statistics for Px, Pz and Y are 2.8, 3.9 and 0.04 respectively.

a) [5 marks] Is good Z a complement or a substitute?

The coefficient in front of the price ofZ is a positive number (+0.2) so this indicates that as the price ofZ increases, the quantity demanded ofX also increases. This is true for a substitute since the person switches to X when Z becomes more expensive. Since the t