Suppose consumers pay less than the true cost of medical services because a third party, such as an insurance company or the government, pays most of the bill. In the following graph, $D_{1}$ represents the demand for medical services if consumers paid the full price of medical services; $D_{2}$ represents the demand for medical services when consumers pay only a fraction of the true cost of medical services; and S represents the supply of medical services. Use the graph to answer the following questions. Briefly explain your answers.

What is the efficient quantity of medical services?

[Related to Solved Problem 5.4 on page 169] Suppose that Joe and Jill are the only two people in the small town of Andover. Andover has land available to build a park of no more than 9 acres. Joe and Jill’s demand schedules for the park are as follows:

The supply schedule is as follows:

Briefly explain why a park of 2 acres is not optimal.

Is it ever possible for an increase in pollution to make society better off? Briefly explain, using a graph like Figure Below.

Imagine you are a provider of portfolio insurance. You are establishing a four-year program. The portfolio you manage is currently worth $100 million, and you promise to provide a minimum return of 0%. The equity portfolio has a standard deviation of 25% per year, and T-bills pay 5% per year. Assume for simplicity that the portfolio pays no dividends (or that all dividends are reinvested). a. What fraction of the portfolio should be placed in bills? What fraction in equity? b. What should the manager do if the stock portfolio falls by 3% on the first day of trading?

A news article noted that some features of the U.S. health care system contribute “to the high cost of medical care by encouraging hospitals and doctors to perform tests and procedures regardless of the value to a patient.” What features is the article referring to? Why would hospitals and doctors perform tests that may not be of any value to patients?

[Related to the Apply the Concept on page 236]Employees in most circumstances do not pay taxes on the value of the health insurance provided by their employers. If employees were taxed on the value of the employer-provided health insurance, what would you expect to happen to the overall compensation employers pay employees? To the value of health insurance provided by employers? To the wages paid to employees? Briefly explain.

[Related to the Don’t Let This Happen to You on page 230] While teaching the concepts of asymmetric information, a professor asked his students for examples of adverse selection or moral hazard in marriage. One of the students, who happened to be married, replied: “Your spouse doesn’t bring you flowers anymore!” Would the student’s reply be an example of adverse selection or moral hazard? Briefly explain.

After graduation, you accept a job with a new small startup. Your manager asks you to evaluate health insurance plans and identify which plan is most likely to help attract good employees. One idea she proposes is to offer health insurance to employees with no deductibles and no copays. What advice might you give your manager? After hearing your advice, she asks if offering more generous health insurance will increase the total employee compensation she will need to offer employees over the next 10 years. How would you answer her, using concepts from the chapter?

Briefly discuss the most important differences between the market for health care and the markets for other goods and services.

What is the Patient Protection and Affordable Care Act (ACA)? Briefly list its major provisions.

University towns with major football programs experience an increase in demand for hotel rooms during home football weekends. Hotels respond to the increase in demand by increasing the prices they charge for rooms. Periodically, there is an outcry against the higher prices and accusations of "price gouging." a. Draw a demand and supply graph of the market for hotel rooms in Boostertown for weekends with home football games and another graph for weekends without home football games. If the Boostertown city council passes a law stating that prices for rooms are not allowed to rise, what would happen to the market for hotel rooms during home football game weekends? Show your answer on your graph. b. If the prices of hotel rooms are not allowed to increase, what will be the effect on out-of-town football fans? c. How might the city council's law affect the supply of hotel rooms over time? Briefly explain. d. University towns are not the only places that face peak and nonpeak "seasons." Can you think of other locations that face a large increase in demand for hotel rooms during particular times of the year? Why do we typically not see laws limiting the prices hotels can charge during peak seasons?

What is the medical terminology used to refer to the lower back?

Suppose the 2014 adidas financial statements contain the following selected data (in millions).

Current assets             $4,485 
Total assets                8,875 
Current liabilities         2,836 
Total liabilities           5,099
Cash                          775
Interest expense              169
Income taxes                  113
Net income                    245

Compute the following values and provide a brief interpretation of each.

(d) Times interest earned.

What is the difference between normative analysis and positive analysis? Is economics concerned mainly with normative analysis or positive analysis? Briefly explain.