14 Imperfect competition and moral hazard. Some economists have argued that moral hazard and monopolistic health care markets are two socially inefficient problems that partially cancel each other out. a Relative to the optimal level of health care Q*, how much health care is provided in the presence of moral hazard? Assume perfectly competitive health care markets. b Relative to the optimal level of health care Q*, how much health care is provided in the presence of monopolistic health care markets? Assume no moral hazard. Write a one-sentence defense of the argument that moral hazard and imperfectly competitive health care markets could combine to provide a good level of health care provision Q. d Gaynor and Vogt (2000) contend that this argument is not quite right. Draw your own version of the Pauly tradeoff diagram (Figure 11.8) with a locus of feasible contracts under moral hazard and perfect competition in the health care market. Now draw a new focus of insurance contracts under imperfect competition. [Hint: Imperfect competition raises price levels, so per-unit premiums will now be higher than before at every insurance level.] Draw a plausible set of indifference curves that shows the optimal contract under perfect competition A* and the optimal contract under imperfect competition A'. f How would you refute the argument you made in Exercise 14(c)? C vde
14 Imperfect competition and moral hazard. Some economists have argued that moral hazard and monopolistic health care markets are two socially inefficient problems that partially cancel each other out. a Relative to the optimal level of health care Q*, how much health care is provided in the presence of moral hazard? Assume perfectly competitive health care markets. b Relative to the optimal level of health care Q*, how much health care is provided in the presence of monopolistic health care markets? Assume no moral hazard. Write a one-sentence defense of the argument that moral hazard and imperfectly competitive health care markets could combine to provide a good level of health care provision Q. d Gaynor and Vogt (2000) contend that this argument is not quite right. Draw your own version of the Pauly tradeoff diagram (Figure 11.8) with a locus of feasible contracts under moral hazard and perfect competition in the health care market. Now draw a new focus of insurance contracts under imperfect competition. [Hint: Imperfect competition raises price levels, so per-unit premiums will now be higher than before at every insurance level.] Draw a plausible set of indifference curves that shows the optimal contract under perfect competition A* and the optimal contract under imperfect competition A'. f How would you refute the argument you made in Exercise 14(c)? C vde
Chapter8: Market Failure
Section: Chapter Questions
Problem 10P
Related questions
Question
![14 Imperfect competition and moral hazard. Some economists have argued that moral
hazard and monopolistic health care markets are two socially inefficient problems that
e 19bnu partially cancel each other out.
Relative to the optimal level of health care Q*, how much health care is provided in
the presence of moral hazard? Assume perfectly competitive health care markets.
a
bns b Relative to the optimal level of health care Q*, how much health care is provided in
m the presence of monopolistic health care markets? Assume no moral hazard.
A bne
c Write a one-sentence defense of the argument that moral hazard and imperfectly
competitive health care markets could combine to provide a good level of health
care provision Q.
d Gaynor and Vogt (2000) contend that this argument is not quite right. Draw your
own version of the Pauly tradeoff diagram (Figure 11.8) with a locus of feasible
contracts under moral hazard and perfect competition in the health care market.
Now draw a new focus of insurance contracts under imperfect competition. [Hint:
Imperfect competition raises price levels, so per-unit premiums will now be higher
than before at every insurance level.]
e Draw a plausible set of indifference curves that shows the optimal contract under
perfect competition A* and the optimal contract under imperfect competition A'.
f How would you refute the argument you made in Exercise 14(c)?
od od
wolsd
in holth ina
ia bot
on the](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0d3682f7-5903-4680-afd0-9de717894597%2F52338292-88e3-4d40-b146-bf0db76af237%2Fkamtm9g_processed.jpeg&w=3840&q=75)
Transcribed Image Text:14 Imperfect competition and moral hazard. Some economists have argued that moral
hazard and monopolistic health care markets are two socially inefficient problems that
e 19bnu partially cancel each other out.
Relative to the optimal level of health care Q*, how much health care is provided in
the presence of moral hazard? Assume perfectly competitive health care markets.
a
bns b Relative to the optimal level of health care Q*, how much health care is provided in
m the presence of monopolistic health care markets? Assume no moral hazard.
A bne
c Write a one-sentence defense of the argument that moral hazard and imperfectly
competitive health care markets could combine to provide a good level of health
care provision Q.
d Gaynor and Vogt (2000) contend that this argument is not quite right. Draw your
own version of the Pauly tradeoff diagram (Figure 11.8) with a locus of feasible
contracts under moral hazard and perfect competition in the health care market.
Now draw a new focus of insurance contracts under imperfect competition. [Hint:
Imperfect competition raises price levels, so per-unit premiums will now be higher
than before at every insurance level.]
e Draw a plausible set of indifference curves that shows the optimal contract under
perfect competition A* and the optimal contract under imperfect competition A'.
f How would you refute the argument you made in Exercise 14(c)?
od od
wolsd
in holth ina
ia bot
on the
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