Question 1. Consider the following statements. Increasing the production from 6th to 7th dialysis machine led to anincrease in cost by $1000 and increased the benefit by $1050. Increasing the production from 9th to 10thdialysis machine led to an increase in cost by $1050 and increased the benefit by $1000.
a) Using this information alone, make a guess regarding what the number of dialysis machines would maximize net benefits?
Question 2. Read the following passage from an article in The Wall Street Journal (October 3, 1995, p. B1) and answer the following questions.
Diabetic Toby Warbet quit her secretarial job last year because of physical problems, including blurredvision and a general loss of sensation. Such was her desperation that when she heard about an unproventreatment that might help her, she decided to borrow $20,000 from relatives to pay for it.... Even if thechances are one in a million, I was hoping I would be the one, says the Livingston, NJ resident.
a) Use the human capital approach to provide a monetary estimate of the value of Toby Warbet's lifeas of October 3, 1995. Explain.
b) Use the willingness-to-pay approach to estimate the value of Toby Warbet's life. Show your work.
Question 3. Use the information below to answer the following questions.
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Cost
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Effectiveness
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Current Treatment
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$100,000
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4 life-years gained
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New Treatment
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$250,000
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10 life-years gained
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a) Calculate the ICER for the new treatment, assuming that the new treatment would replace the old one.
b) Is cost effectiveness analysis relevant?
c) How does the answer change if the cost of the new treatment equals $75,000?
Question 4. Use supply and demand models to illustrate how the following changes would a_ect the demand curveor the supply curve for inpatient services at a hospital in a large city. Be sure to label old and newcurves (D1=old demand, D2= new demand, S1=old supply, and S2=new supply). What is the impacton price (increase/decrease) and quantity (increase/decrease)?
a) Average real income in the community increases.
b) A number of physicians in the area join together and open up a discount-price walk-in clinic.Suppose physician services and inpatient hospital services are complements.
c) Suppose the hospital building goes through a renovation.
Question 5. Using supply and demand analysis, show graphically and explain verbally some of thefactors that may have led to rising health care costs in the United States from 1960 to the present day.
Question 6. Suppose demand curve is given by P = -1/10Q + 10 and the supply curve is given by P = 1/10Q + 2. P denotes Price and Q denotes Quantity
a) Graph both the supply and demand curves.
b) What is the equilibrium price and quantity (P and Q)?
c) Calculate consumer surplus. Shade appropriate area in graph.
d) Calculate producer surplus. Shade appropriate area in graph.
e) Calculate total surplus.