Posted: March 21st, 2023

ECO327 Part 1&2 – What does it mean for an

ECO 327 Stony Brook University Economics Questions
ECO 327 : Health Economics Midterm
Part 1: Short Answer Questions
1. What does it mean for an insurance contract to be actuarially fair? What is premium (r) in actuarially fair contract? What does it mean for an insurance contract to be full? What is payout set for a full contract?
2. Name and explain the four theories for not-for-profit hospitals
3. Name and explain the four theories for the SES-Health Gradient • Show effects on MEC curves, or budget for specific theories
4. Grossman Questions
• Plot the production possibilities frontier for H and Z.
– What if U = H, then show the optimal point on the graph.
– What if U = Z, then show the optimal point on the graph.
Part 2: Numerical Questions
1. Market for Lemons: utility for seller is Us = Xj + M , utility for buyer is Ub = 1 X + M , where Xj is car quality and M is an outside good whose price is equal to 4 j 1. Further, X ∼ U nif orm[0, 10]. Will cars sell in this market?
. Expected Utility : Suppose someone has the following utiltiy function U = x0.5 . Suppose they facing the risk of becoming sick, which impacts their health. Income when sick is Is = 1000, income when healthy is Ih = 2000, and the probability of becoming sick = 0.5.
(a) What is expected income ? (b) What is expected utility of income ? (c) What is utility of expected income ? (d) Will this indiviudal buy medical insurance ?
3. Suppose there are 3 hospitals in a market with equal market shares. Calculate the Herfindahl-Hersh index and determine if this market is concentrated or not. What if 7 more firms and market shares are equally distributed, Calc the HH index and determine if this market is concentrated or not.
4. Using graphs of the Marginal efficiency of capital, the health production curve, the labor-leisure graph, and the production possibility frontier. Show what happens when depreciation rate increases from γY to γO .


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