Question 1. Income per day of a physician working in a clinic is shown by the equation: Y=260h [260 multiplied by 'h'], where h is the hours of work done on that day and Y is the income earned. If the physician works for a hospital, her income per day can be expressed as: I=500h-20h²,  where 'I' is the income earned from hospital work.  This equation tells us that if the physician works two hours in the hospital, the income from hospital work will be: (500)(2) -20(2²)=1000-80=920. Physicians are not allowed to work more than 10 hours in a day. If the physician is trying to maximize income, how many hours will the physician work per day? What will be the hours of work in the hospital and in the clinic to maximize income? What will be the income earned by the physician per day? Show your work.  

Question 2. In USA, tax treatment of health insurance premium (that is, health insurance premium is paid prior to assessment of income tax and so there is no income tax on the premium) encourage purchase of health insurance. To show how the tax treatment of insurance premium encourages participation in insurance, consider two individuals with income of $75,000 and $25,000 per year. Health insurance premium each individual will have to pay is $5,000 if they want to participate in the insurance program. Out of this total premium, $4,000 is the pure premium and $1,000 is the risk premium. If the income tax rate is 25% for higher income person and 5% for lower income person, how does the tax treatment affect the risk premium of these two individuals? How this change in risk-premium affects demand for insurance for the low income and high income person? Given the information, do you think the high-income person will buy health insurance? Why? How about the low-income person? Explain. [Hint: if the first person does not buy insurance, he will pay 25% of whole income as tax but if he buys insurance he will pay 25% tax on $70,000, as $5,000 premium is tax free]

Question 3. What is a health production function? What variables can we use to measure health production or outcome (mention at least two)? What are the possible input variables? Most estimates indicate that marginal productivity of health expenditure (a proxy for health service use) on health outcome is very close to zero in the USA. If that is the case, how can we explain the continuous increase in health expenditure in the USA over the years? Explain your answer by drawing health production functions over the years.

Question 4. Using a diagram show the effect of increasing income on demand for health insurance, keeping the cost of medical care constant.  What will be the effect of increasing risk-averseness of individuals on the demand for health insurance? Use a diagram to illustrate your point. [Clearly label the axes and provide some explanation on the diagrams you have drawn].

Question 5. Using demand-supply framework, discuss the effect of importing registered nurses (RN) from other countries to the USA. Discuss the effect of this policy of allowing immigration of nurses on the market for RNs, market for RN education, market for hospital services (hospital service and RN services are complements of each other), and market for health insurance.