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Health insurance and demand for health care

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Why is the depreciation of capital good a cost of society? In what ways does a person's health depreciate? Why might older people's health care expenditures increase in the Grossman model even though their desired health stocks may be lower? List at least three factors that might increase an individual's marginal efficiency of investment in health capital.

The deductible feature of an insurance policy can affect the impact of moral hazard. Explain this in the context either of probability of treatment and/or amount of treatment demanded. Describe the benefits to society from purchasing insurance. Describe the costs. Define and discuss the welfare gains from changes in insurance coverage.

If only risk-averse people will buy health insurance, why do many people who buy health insurance also buy lottery tickets (an activity more consistent with risk taking)? Speculate on the differences and similarities.

Why are firm-specific demand price elasticities higher than elasticities for demand in general? Why does a high elasticity indicate a very competitive market?

It has been discovered that countries with higher per capita incomes spend more than proportionally as much on health care. What does this imply about the cross-national income elasticities? Why might this occur, even though individual income elasticities seem to be quite low?

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A capital good is used for the creation of goods and services in an economy. As a person ages or experiences injuries, he or she will not be able to work as effectively. Thus, economic output declines in the same manner that it would when machinery ages. The Grossman model anticipates a decline in health with age. Thus, older people will find that their expenditures on health will be greater to maintain a lower health stock. Factors that might increase the marginal efficiency of investment in health capital are better medical services, a better environment (less pollution), and better medical knowledge.

Deductibles encourage people to take care of themselves, because they know that if they have to see a doctor there will be some expense involved. The amount of treatment sought will decline as the deductible increases, because a person will be more motivated to keep the large amounts of money rather than spend it on medical expenses. Society benefits from health insurance because ...

Solution Summary

Risk aversion, moral hazards, and the elasticity of the demand for healthcare

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