38 Questions
What may managers prioritize over maximizing company profits?
Maximizing their salaries or length of stay in the job
What can be a reason for government failure in administering certain tasks?
Low wages that prevent hiring competent people
In which type of countries may the private sector play a larger role in healthcare?
Poor countries
What is one way to achieve goals in the healthcare system, according to the 'Competition' approach?
Using financial incentives to achieve goals
What is a characteristic of rich countries in terms of their approach to healthcare?
They can afford to be more involved in healthcare
What is the main difference between the 'Regulation' and 'Competition' approaches to healthcare?
One emphasizes government programs, the other markets and incentives
Why may production be more efficient with a natural monopoly?
Due to economies of scale
What is one way to regulate an industry with market power?
Implement a price cap
Why may governments negotiate with drug companies and doctors?
To set maximum prices
What is an example of government provision?
Building a hospital in a developing country
According to the theory of local capture, what motivates politicians?
The desire to maximize votes from special interest groups
Why might government provision of goods be inefficient?
Because government is a monopoly
What can lead to government failure?
Difficulty in agreeing on objectives
What is a criticism of government provision of goods?
Government may prioritize quick fixes over long-term solutions
What is the primary purpose of informing consumers and providers in government intervention?
To persuade them to act in a certain way
What type of government intervention determines how a private activity may be undertaken?
Regulation
What is characterized by being non-rival and non-excludable?
Public goods
What is an example of a mandate in government intervention?
Employers of a certain size must provide health insurance
What type of government intervention is more typical of developing countries?
Providing
What is an example of a public good in health care?
Control of disease vectors
What is the purpose of taxing certain goods in government intervention?
To discourage consumption of certain goods
What is a characteristic of government intervention in developed countries?
Providing a lot of autonomy if publicly provided
What is the primary reason for market failure in the case of merit goods?
Because people tend to consume too little of them
What is the main issue with public goods?
There is a lack of voluntary contribution for their production
Why do governments intervene in the market to correct the issue of externalities?
To compensate third parties affected by the production or consumption of a good
What is a common example of a merit good?
Compulsory education
Why do factories not pay extra for polluting the air?
Because they are not yet held accountable for the negative externality.
Why do governments often use mechanisms other than price to ration healthcare?
Because perfect competition is not achievable in healthcare
What is a policy option for addressing negative externalities such as air pollution?
Regulating and mandating laws to control pollution.
What is an example of a charitable externality that justifies large social insurance programs?
Providing vaccination campaigns in developing countries.
What is the term used to describe individuals who benefit from public goods without contributing to their production?
Free-riders
What is the primary issue with government intervention in the market?
It may not necessarily make people better off
Why do insurance companies not want to insure people with pre-existing diseases?
Because they can't predict the medical costs.
What is the goal of government intervention in healthcare?
To achieve perfect competition
What is a policy option for addressing incomplete markets in the insurance industry?
Mandating insurance companies to cover people with pre-existing diseases.
What is an example of a merit good?
Health care.
What is an example of an industry with market power?
Hospital and drug companies.
Why do many developing countries have universal health care systems?
Because everyone should have access to health care.
Study Notes
Government Intervention in Health Care Markets
- Not all managers aim to maximize company profits, some may prioritize their salaries or job security
Reasons for Public Intervention
- Government Failure: lack of capacity to administer, low wages, corruption, and limited taxation ability
- Public Goods: non-rival and non-excludable, e.g., disease control, food and water safety
- Merit Goods: goods considered good for individuals regardless of their preferences, e.g., compulsory education, wearing seat belts
- Externalities: third-party effects, e.g., air pollution, contagious diseases
- Incomplete Markets: lack of insurance for pre-existing conditions
- Market Power: monopolies, oligopolies, and price controls
Types of Government Intervention
- Inform: persuade consumers, providers, and suppliers to act in a certain way, e.g., publicizing health risks
- Regulate: determine how private activities are undertaken, e.g., setting standards for doctors and drug trials
- Finance: provide health care with public funds, e.g., public funding for health services
- Provide: deliver health services using publicly-owned facilities and civil service staff, e.g., crown corporations
- Taxes/Subsidies: taxing goods, e.g., cigarettes, and subsidizing health care
Role of Public and Private Sector
- No one-size-fits-all approach, depends on the country's income level
- Poor countries: larger role for the private sector, due to limited taxation ability and inability to provide health care for all
- Rich countries: governments can afford to intervene more in health care, with a focus on regulatory mechanisms and financial incentives
Government Failure
- Theory of Local Capture: politicians prioritize special interest groups over the economy
- Bureaucracy and Efficiency: government monopoly, lack of efficiency, and preference for quick fixes
This quiz assesses understanding of government failure, specifically capacity issues and corruption, as well as the role of public and private sectors in different economies. Topics include the motivations of managers and the impact of income levels on economic systems.
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