MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
9th Edition
ISBN: 2810022149537
Author: Baye
Publisher: MCG
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Chapter 12, Problem 15PAA
To determine
To know: The reason for controversial legislation.
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- The following question asks about what happens to employment (Q), wages (W), and total compensation (T) when firms begin offering health insurance benefits. Without health insurance benefits, the labor supply curve in terms of wages is given by W 6 + Q, and the labor demand curve in terms of wages is W = 10 - Qp. Q here is hours of work. W is wages in dollars per hour. Assume that workers value the health benefits at $5 per hour. Assume the benefits cost the firm $4 per hour to provide. 1. When firms begin offering health insurance benefits, which of the following is true about the new demand curve? In this exercise, demand curve is still defined as function of wages (rather than as a function of total compensation). The demand curve will shift up by $4 The demand curve will shift down by $4 O The demand curve will shift up by $5 O The demand curve will shift down by $5arrow_forwardJenny believes that the unwillingness to buy insurance by young healthy people creates a moral hazard problem for health insurance companies. Diego disagrees, and believes that their unwillingness to buy health insurance creates an adverse selection problem. Who is right? Explain.arrow_forwardwhy is adverse selection important in healthcare insurance markets.arrow_forward
- Based on Friedman and savage utility of income what factors affect demand for health insurance?arrow_forwardThe fact that costs of insurance effectively come out of the wages is a wage pass through. How can employer-sponsored insurances affect wages? Employer-sponsored insurances shift the labor demand curve to the left and shift the labor supply curve to the right and as a result, the equilibrium wage will be lower. Employer-sponsored insurances shift the labor demand curve to the left and shift the labor supply curve to the right and as a result, the equilibrium wage will be higher. Employer-sponsored insurances shift the labor demand curve to the right and shift the labor supply curve to the left and as a result, the equilibrium wage will be lower. Employer-sponsored insurances shift the labor demand curve to the right and shift the labor supply curve to the left and as a result, the equilibrium wage will be higher.arrow_forwardWhat are some strategies for reducing adverse selection in insurance markets? What sorts of problems do these solutions cause?arrow_forward
- Even though the total cost of an uninsured hospital stay is lower, why would an uninsured person actually end up paying more than those with insurance?arrow_forwardOne of the significant problems in medical care markets may be the information problem. Asymmetric information has led to two important defects in the medical marketplace. What are they? How do these defects affect medical markets?arrow_forwardWhen an employer provides health insurance benefits as part of the compensation package, does this represent a gift by employers to their employees? Do employees earn these benefits? Why or why not? Justify your response.arrow_forward
- A noted insurance authority has said, “Because the financing of long-term care is inconsistent with insurance principles, it is a problem that does not lend itself to solution through insurance.” In what ways is the financing of long-term care inconsistent with insurance principles? What, in your opinion, is the solution to the problem of financing long-term care?arrow_forwardDemand studies in health care have provided estimates of both income and price elasticity. Estimates of income elasticity are usually above +1.0. Estimates of price elasticity typically range between -0.1 and -.75 (with hospital services at the lower end and elective services at the upper end). What information do these estimates convey? What does the price elasticity of demand estimates imply for government policymakers, insurance companies, and medical providers' decisions? What does the income elasticity of demand estimates imply for government policymakers, insurance companies, and medical providers' decisions?arrow_forwardHow much is Jane’s deductible? What percentage of the bill does Jane’s health care plan pay once co-insurance begins? What percentage of the bill does Jane pay once co-insurance begins? How much is Jane’s out-of-pocket limit? How much does Jane pay after she reaches her out-of-pocket limit?arrow_forward
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