Health Econ Midterm

Duquesne University HADM 305 Fall 26

health

a state of complete physical, mental, and social well-being, and not merely the absence of disease or infirmity

economics

a social science concerned chiefly with the description and analysis of production, distribution, and consumption of goods and services

scarcity

the fundamental economic problem where society has limited resources to satisfy human wants and needs

opportunity cost

the value of the next best alternative that must be forgone when making a choice

positive economics

the branch of economics that focuses on facts, cause-and-effect relationships, and descriptive analysis (“what is“)

normative economics

the branch of economics that incorporates value judgments and opinions about what the economy should be (“what ought to be“)

externalities

costs or benefits of a market activity that affect third parties who did choose to incur those costs or benefits, often triggering government intervention

ceteris paribus

the assumption of “all other things being equal or held constant“, used to isolate the relationship between two specific variables

utility

a measure of total satisfaction, advantage, or fulfillment a person receives from consuming goods or services

marginal utility

the additional satisfaction gained from consuming each extra unit of a good or service

law of diminishing marginal utility

the economic principle stating that as consumption of a good increases, the marginal utility derived from each additional unit eventually declines

law of demand

the inverse relationship between price and quantity demanded: as the price of a good rises, the quantity demanded falls (and vice versa)

price elasticity of demand

a measure of how responsive the quantity demanded is to a change in price, calculated at the percentage change in quantity divided by the percentage change in price

price-inelastic demand

when a change in price causes only a very small change in quantity demand (absolute value between 0 and 1), characteristic of essential medical care

income elasticity of demand

a measure of how consumer demand responds to changes in personal or population income

normal good

a good or service (such as standard healthcare checkups) for which demand increases as consumer income rises

inferior good

a good for which demand decreases as consumer income rises (ex. public health clinics, over-the-counter alternatives)

luxury good

a good or service (such as elective cosmetic surgery or private hospital suites) with an income elasticity greater than 1, where consumption surges as wealth increases

randomized control trial (RCT)

an experimental study design that randomly assigns subjects to treatment groups to eliminate selection bias and establish true casual interference (ex. RAND health insurance experiment)

socioeconomic status (SES)

an individual’s or groups’ standing in society, typically measured by education, income/wealth, race/ethnicity, social standing

efficient producer hypothesis

the theory that higher-SES individuals are more efficient producers of health because the process health information and utilize inputs more effectively

thrifty phenotype hypothesis

the theory that early-life environmental conditions (such as prenatal malnutrition) permanently program a body’s metabolism, creating vulnerabilities to chronic diseases later in life

direct income hypothesis

the theory that health disparities are driven directly by differences in financial resources, allowing high-income individuals to buy more health improving goods

allostatic load hypothesis

the theory that chronic, long-term psychological and environmental stress wears down the body’s physiological systems over time, disproportionately affecting lower-SES groups

access to care hypothesis

the theory that health disparities stem from differences in individuals’ ability to afford or access high-quality medical care and health insurance

productive time hypothesis

the theory that causality runs from health to SES; better health increases an individual’s productive time available for working, earning wages, and accumulating wealth

fuchs hypothesis (time preference)

the theory that an unobserved 3rd variable (namely, an individual’s time preference or patience) drives both health investments and educational/financial investments simultaneously

net present value (NPV)

the sum of the present values of incoming and outgoing cash flows over a lifetime, used to evaluate the financial return of becoming a physician versus entering the typical workforce

internal rate of return (IRR)

the discount rate that makes the net present value of all cash flows from a lifetime career equal to zero

monopoly rents

supernormal profits generated when artificial or structural barriers to entry restrict competition in a market

agency relationship

a fiduciary relationship where an expert agent (the physician) makes medical decisions on behalf of a less-informed principal (the patient)

physician-induced demand (PID)

the situation where a physician uses their expert knowledge and agency power to influence a patient’s demand for care beyond what the patient would choose if fully informed

medical malpractice

professional negligence by a healthcare provider that falls below the accepted standard of care, leading to defensive medicine and inefficient service provision

“physician’s workbench“ (harris model)

the dominant US hospital organizational model where physicians run independent private practices but use the hospital’s facilities and support staff to treat patients without being direct employees

medical arms race hypothesis

the economic theory that when price competition is suppressed due to insurance, hospitals compete on quality and technology, leading to overinvestment, duplication of services, and rising costs

differentiated product oligopoly

a market structure characterized by a small number of firms producing products or services that are close, but imperfect, substitute (applicable to local hospital markets)

herfindahl-hirschmann index (HHI)

a commonly accepted measure of market concentration calculated by squaring the market share of each firm in the industry, used to evaluate hospital monopoly power

cost-shifting (cross-subsidization)

a practice where hospitals charge private insurance higher reimbursement rates to cover financial losses incurred from treating medicare, medicaid, and uninsured patients

learning-by-doing hypothesis

the observation that surgical and clinical mortality rates decrease as a hospital’s procedure volume increases, because staff gain proficiency through repetition