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University of Illinois, Chicago *
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Course
215
Subject
Economics
Date
Apr 3, 2024
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Pages
2
Uploaded by MasterTarsierMaster614
University of Illinois at Chicago
Department of Economics
Carmen Anthony Esposito, M.S.
ECON 215: Health Economics
Problem Set #3
This assignment is graded out of 100 points. Submit your assignment to Blackboard as a single PDF
by 11:59pm on October 26, 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:
Two exercises will be randomly selected and graded. The rest of the exercises will be taken
for completion points only.
Exercise 1.
Consider the following hospital payment systems. Describe how each of them will affect:
(1) the number of admissions; (2) the average length of stay; (3) the volume of services per day.
1. fee-for-service payment [5]
2. Per Diem payment (payment per day) [5]
3. fixed-fee per admission [5]
4. per-episode (*one single episode can involve readmissions as well) [5]
Exercise 2.
In towns A, B, C, D, and E, the prevalence of appendectomies is 2.1%, 2.9%, 3.1%, 3.8%,
and 3.9%.
1. Calculate the coefficient of variation for the five towns. [10]
2. According to Phelps, is there agreement among surgeons on the marginal benefit of appendec-
tomies across these towns? Explain. [5]
3. Town F is added to the study and has a prevalence of appendectomies of 3.2%. Calculate the
coefficient of variation for these 6 towns. [10]
4. Does this change your answer to b) above? [5]
Exercise 3.
Use Figure E15.3 to determine if the statements below are TRUE or FALSE.
1
1. Initial supplier revenues
1
equal $800. [3]
2. An increase in supply from
?
1
to
?
2
, in the
absence
of SID increases total revenue to $1,360. [3]
3. If in response to an increase in supply from
?
1
to
?
2
, the new equilibrium quantity supplied and
demanded is point
?
on supply curve
?
2
. The supplier revenue will increase by $280. [3]
4. If providers have a target income of $800, and supply increases from
?
1
to
?
2
, they will c. seek to
induce demand high enough to raise the product of price and quantity to $800. [3]
5. Supplier-induced demand (in this context) will increase the use of medical services. [3]
Exercise 4.
Using McGuire and Pauly’s model of physician behavior, show graphically how the amount
of physician inducement for one physician increases and for another physician decreases when the profit
rate per unit of patient care increases. [25]
1
Revenue is equal to the product of price and quantity.
2
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