Instructions to students: All questions are compulsory.

All questions have the same amount of marks.

TASK: EC3020 Health Economics Assignment

Question 1.

Choose the TRUE answer:

The theory of rational addiction (Becker and Murphy, 1980) has been criticized for ignoring:

a)that individual time preferences are constant

b)that tolerance is a characteristic that only develops after long term use (above ten years) of drugs

c)that individual time preferences may change over an individual’s lifetime

d)none of the above.

Question 2.

In the contest of the Grossman model, as people age their optimal health stock

________ because _________.

a)increases; people are ill more often.

b)increases; people are using more care.

c)decreases; cost of capital increases, and remaining life span decreases.

d)decreases; cost of capital decreases, and remaining life span increases.

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Question 3.

Suppose that a firm that is refining raw materials also pollutes the water, a public health concern. The marginal costs of the raw materials are MPC, but the pollution cost is MEC (marginal external cost). The total social cost MSC = MEC + MPC. If the government wishes to achieve an optimum, what is the tax per quantity they should impose?

a)£A.

b)£(E – A).

c)£0.

d)£(F – A)

Question 4: EC3020 Health Economics Assignment-City, University of London

Choose the TRUE answer:

a)The behavior of firms is irrelevant to explain the correlation between purchases of an addictive product in different points in time, only assumptions on the myopic or rational nature of the demand side do.

b)That firms incorporate the addictive nature of the good sold in their profit maximising objective function may explain the correlation between purchases of addictive products in different points in time independently of the assumptions made on the demand function.

c)The existing literature explains the dependence between purchases of an addictive good in different points in time by using oligopoly models with imperfect information.

d)None of the above

Question 5.

Researchers have found that income elasticities of health care demand are less than

____ at the individual level, but generally greater that ____ at the national level:

a)0; +0.5.

b)+0.25; +0.5

c)+1.0;+1.0.

d)+1.0; 2.0

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