Transcript
Chapter 18 – Equity, Efficiency, and Need
Key Ideas
Economics can provide useful criteria for society’s efficient allocation of resources through the concept of Pareto optimality. However, Pareto optimality does not imply equity. The allocation in which one person has all of the resources, and others have none is, in fact, a Pareto optimal allocation.
Efficiency criteria provide strong support for the imposition of competitive markets, assuming that the conditions under which competitive markets may emerge will be present. Economist Thomas Rice argues that many of the necessary conditions do not hold, and hence competitive markets may not be optimal, or desirable.
Although Pareto optimal conditions and the resulting contract curves provide a menu of possible allocations of goods, the decision as to which allocation is preferable for society is a political one that must be provided by a political process.
Teaching Tips
The Edgeworth Box analyses presented here relate to any two generic goods. Is health care comparable to other goods? Why or why not?
Thomas Rice’s volume is reasonably current and nontechnical. Instructors with time for book reviews or discussions may wish to assign it.
Students may not be familiar with Lorenz curves. One can demonstrate them with quartiles or quintiles of population and expenditures. Gini coefficients can be approximated by adding areas of triangles and trapezoids under the curve, and comparing them to a denominator of 5,000 (i.e. 0.5 x 100 x 100). Instructors may want to ask students whether standard Lorenz curves can cross (they can!).
The 2010 passage of the Patient Protection and Affordable Care Act (PPACA), and the continuing debate about it constitute ideal opportunities to look at health care equity. There is considerable discussion in other chapters (particularly Chapter 23) of the Act and its features. Issues of insurance, coverage, access, and/or utilization, will provide animated discussions.
Chapter 18 – Efficiency, Equity, and Need – Multiple Choice
Equity refers to the _________ of the allocation of goods and services:
costs.
fairness.*
efficiency.
benefits.
Definitions of equity typically refer to allocations of health care:
inputs.
outputs.
consumer incomes.
Answers (a) and (b) are correct.*
In the diagram above, point ___ is an unambiguous improvement from point ___ for Belinda.
F; E
B; E.*
C; D.
E; B.
In the diagram above, which points refer to efficient allocations of goods between Abner and Belinda?
A, E, G.*
C, D, E.
B, C, F.
B, D, F.
In the figure above, point ___ represents a competitive equilibrium. This means that it is _________.
D; equitable.
B. equitable.
E; Pareto efficient.*
C; Pareto efficient.
Reallocating both food and medical goods away from Abner to Belinda would be described by a movement from point ______ to point _________:
B; C.
C; B.*
E; D.
D; F.
In the figure above, if one defines equity in terms of the amount of medical goods that each person has, then moving from point C to point E may _____.
increase equity and reduce efficiency.
decrease equity and decrease efficiency.
increase equity and increase efficiency
decrease equity and increase efficiency.*
In the figure above, according to the Second Fundamental Theory of Welfare Economics, competitive markets can be used to move Abner and Belinda from point B to point E if:
Belinda agrees to give Abner some food.
Abner agrees to give Belinda some food.
Some food and medical goods are taxed from Belinda and provided to Abner.*
Some food and medical goods are provided by the government to Abner.
Giving a poor person food at half of the market price ___ Pareto Optimal because ____:
is; the poor increase their welfare.
is; rich decrease their welfare.
is not; the poor person can sell the subsidized food at the full price and be better off;*
is not; the rich people will not agree to it.
Okun’s “leaky bucket” suggests that:
redistributing resources may be done in a Pareto efficient manner.
redistributing resources may be done without losing any of the resources.
redistributing resources may reduce the total amount of resources available.*
Answers (b) and (c) are correct.
.
________ represent positive external benefits of a program to inoculate the population against contagious diseases.
The salaries paid to the workers.
The payments to the vaccine manufacturers.
The reduced probabilities of disease for those who are not inoculated.*
Answers (a) and (c) are correct.
In the presence of external benefits, competitive markets will generally provide:
the economically efficient level of output.
less than the economically efficient level of output.*
more than the economically efficient level of output.
The answer depends on the nature of the benefits
When there are external costs, competitive markets will generally provide:
the economically efficient level of output.
less than the economically efficient level of output.
more than the economically efficient level of output.*
The answer depends on the nature of the benefits
The “welfarist critique”:
argues that health care is too expensive for most people.
asserts that competitive markets in the health economy may not always work because the health economy violates many of the assumptions.*
argues that redistribution of resources from the rich to the poor will provide a Pareto efficient improvement for society.
makes the point that one need not worry about fairness in allocating health resources.
In the figure above, curve UU is downward sloping because:
there are diminishing marginal returns to person A.
there are increasing marginal returns to person B.
with Pareto efficient allocations person A’s utility must come at the expense of person B’s utility.*
Answers (b) and (c) are correct.
In the figure above, point B is on a 45o line. This means that person A and person B:
both have the same incomes.
both have the same amounts of health care.
both have the same utility levels.*
answers (b) and (c) are correct.
In the figure above:
point C is economically more efficient than point B.
point C is preferable to people like Albert than point B.*
any society would be indifferent between points B and C.
people like Belinda would be better off at point C than at point B.
In the figure above, moving from point B to point C means:
reallocating more of at least one good from Belinda to Albert.*
reallocating more of at least one good from Albert to Belinda.
there will be a more equitable society.
that Belinda will stop working.
The Theorem of the Second Best implies that:
policies that promote competition improve economic welfare.
because there are multiple market imperfections we cannot always be sure that policies that promote competition will improve economic welfare.*
because there are multiple market imperfections policies that promote competition will never improve economic welfare.
equity is a better target for economic policies than is efficiency.
According to the theorem of the Second Best easing medical licensure laws :
will improve societal well-being because we have greater freedom of choice.
will improve societal well-being because the increased competition will lower prices.
may not improve societal well-being because of increased pollution.
may not improve societal well-being because services of inferior quality may be produced by less qualified providers.*
In the figure above, curve _______ represents the most even distribution of health care spending.
A.
B.*
C.
D.
In the figure above, curve ______ represents a distribution in which spending favors the poor.
A.*
B.
C.
D.
The analysis of van Doorslaer and colleagues (Table 18-1) finds that across countries general practitioner care ____ and specialty care ________.
favors the poor; favors the rich.*
favors the poor; also favors the poor.
favors the rich; favors the poor.
favors the rich; also favors the rich.
In the analysis of van Doorslaer and colleagues (Table 18-1), a positive value means that:
those at higher income levels are “advantaged.”
those at higher income levels are “disadvantaged.”
those at lower income levels are “disadvantaged.”
Answers (a) and (c) are correct.*
In the analysis of van Doorslaer and colleagues (Table 18-1), the poor are better off in all measures in:
France
Germany
Luxembourg*
Answers (a) and (b) are correct.
Under the “maximin” principle, a society would be best off if it:
Allocated resources to the most productive members.
Allocated resources to the least productive members.
Maximized the position of those who were in the best circumstances.
Maximized the position of the worst off.*
In speaking of the “bottomless pit,” analysts worry that:
allocating a society’s resources to equalize patient outcomes could exhaust the resources.*
allocating a society’s resource to the poor could cause the rich to stop working.
spending resources on additional care does not increase patients’ health.
Answers (b) and (c) are correct.
Seeking _____ is most likely to lead to a “bottomless pit” with respect of health care resources:
equality of access.
equality of utilization.
equality of outcome.*
Answers (a) and (c) are correct.
According to utilitarians, society’s welfare is maximized by:
allocating resources to the poorest members of the population.
continually reallocating resources to those with the lowest marginal utilities, hence maximizing total utility.
continually reallocating resources to those with the highest marginal utilities, hence maximizing total utility.*
Answers (a) and (b) are correct.
According to utilitarians, society’s welfare is maximized when:
when everyone has the same marginal utility.*
when everyone has the same total utility.
when the poorest have high marginal utility.
Answers (a) and (b) are correct.
