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there is ongoing concern about the spread of meningitis.See “Meningitis on Campus,” American College Health Association, April 27, 2005, accessed February 1, 2011, http://www.acha.org/projects_programs/meningitis/index.cfm. With concerns like this in mind, it is also common for colleges to require some vaccinations prior to admission. The argument for such interventions is that there are externalities from your health to the health of others. The government licenses many of the actors on the supply side of the health-care market. This is another form of quality control. Doctors who practice in a state must pass exams called medical boards. Hospitals are certified for the types of activities they offer. Often the certification occurs at the state level.For details about accreditation in Texas, for example, see Texas Department of State Health Service, “General Hospitals—Health Facility Program,” accessed March 14, 2011, http://www.dshs.state.tx.us/HFP/hospital.shtm. Other providers of health care are also licensed. For example, a nursing home must be certified as a Medicare provider to receive reimbursements. The rationale for such interventions stems from the extensive information problems in the health-care market. As consumers are unable to accurately assess the quality of care provided by doctors and hospitals, the government provides a service to us all by regulating health-care providers. Provision of Insurance The government, through its Medicaid and Medicare programs, provides insurance to both low-income and elderly households. There is continuing debate about expanding the availability of health insurance to the general population. On March 23, 2010, President Obama signed a health-care reform bill.Ample discussion by the White House along with the final bill is available at “Health Reform Puts American Families and Small Business Owners in Control of Their Own Health Care,” The White House, accessed March 14, 2011, http://www.whitehouse.gov/health-caremeeting/proposal. The main goal of the bill is to reduce the number of individuals without health insurance in the United States. This bill seeks to achieve this by requiring that everyone purchase health insurance, either through an employer or individually. The legislation provides opportunities for households to obtain insurance on their own through subsidies and a “marketplace for insurance.” The bill regulates insurance policies in several ways. For example, it places limits on the ability of insurance companies to exclude people from coverage due to preexisting health conditions or other health risks. It also restricts the ability of insurance companies to set and change rates on insurance policies. The new policy will not be fully in force until 2014. It is extremely complex (the bill itself is almost 1,000 pages long), and its impact on health-care outcomes, health-care costs, and the deficit remains an open question. (Even the short summary of the actLibrary of Congress, “Bill Summary & Status: 111th Congress (2009–2010), H.R.3590, CRS Summary,” accessed March 14, 2011, http://thomas.loc.gov/cgi-bin/bdquery/z? d111:HR03590:@@@D&summ2=m&. does not make easy reading.) By the time of its implementation, details on the new law may be clearer. In particular, exactly how insurance markets will be organized and regulated will be made more precise. Further, when the bill was passed, estimates were made of the cost savings from the measure. Over time, we will be better able to forecast the spending and taxation implications of the bill once household and firm responses are observed. Then we can see if this legislation improves the efficiency of the health-care market. A more fundamental question is whether the government should even be in the business of providing health insurance. One set of arguments for government involvement rests on the various market failures that we have identified in this chapter. Health care is complicated, and there are many ways in which health-care markets depart from the competitive ideal. It is sometimes argued that spending on health services in the United States is very high because the market is very inefficient. From that perspective, having the government in charge of this sector of the economy might reduce inefficiencies. Second, government involvement can be justified on the grounds of equity and fairness. Provision of Information One of the primary roles of the government is to provide information to the public about health matters. This comes in a variety of forms. In January 1966, the following warning first appeared on cigarette packs: “Warning: Cigarette Smoking May be Hazardous to Your Health.” This initial warning from the Surgeon General’s office of the United States was followed by many others concerning the consumption of cigarettes and other potentially harmful products. Such warnings are a good example of government provision of information. Each consumer of these products wants to know the impact on health. Gathering such information is a public good because the information is available to everyone and can be “consumed” by everyone simultaneously. Another form of information is through drug testing. The US Food and Drug Administration (FDA; http://www.fda.gov) is responsible for testing drugs before they appear on the market. The FDA also supplies public information about a wide range of food items.
KEY TAKEAWAYS Government intervention in this market reflects inefficiencies in the market as well as concerns over equity. Government intervention takes many forms around the world, including the provision of health insurance, the direct provision of health-care services, and the regulation of drug companies. CHECKING YOUR UNDERSTANDING 1. What is the commitment problem of a hospital? 2. Recent concerns about the H1N1 virus led the governments in many countries to intervene. How would you explain the basis for this intervention using the list of market failures provided in this section? 3. Give a recent example where the government provided a health warning. 15.4 End-of-Chapter Material
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This content is copyright Flat Worl
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Government Policy End-of-Chapter Ma
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may never take another economics co
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see small groups of people sitting
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CHECKING YOUR UNDERSTANDING 1. List
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you something about how to make bet
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all the different things you like b
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As the game was drawing to a close,
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pollution in Mexico City is in part
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In Conclusion Our book is built aro
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We start with the decision about ho
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Bundle 6 shows that, if you chose t
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total spending + spending ≤ dispo
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Economists don’t pretend to know
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point. We see what people do, not t
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CHECKING YOUR UNDERSTANDING 1. Supp
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smaller quantity of instant noodles
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Figure 3.9 The Demand Curve Table 3
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example: if the price of CDs increa
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Figure 3.13 The Valuation of a Car
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CHECKING YOUR UNDERSTANDING 1. Thin
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So Figure 3.14 "The Time Budget Con
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Toolkit: Section 17.3 "The Labor Ma
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CHECKING YOUR UNDERSTANDING 1. If y
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9. (Advanced) Suppose the governmen
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LEARNING OBJECTIVES 1. What is your
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Figure 4.2 The Budget Line with Two
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The Position of the Budget Line Whe
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Toolkit: Section 17.4 "Choices over
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Saving and Borrowing Your preferred
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Toolkit: Section 17.5 "Discounted P
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Figure 4.8 Individual Loan Supply F
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Table 4.8 Coin-Flipping Experiment
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Diversification of Risk In many cas
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jobs. The unemployment rate is the
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Figure 4.11 Work Fatalities in the
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Lottery Games Odds Calculator,” a
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EXERCISES 1. Explain why an increas
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Figure 5.1 The eBay Home Page In or
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Road Map The chapter falls naturall
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Double Oral Auctions In a double or
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Figure 5.13 Supply and Demand When
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Figure 5.15 Surplus in Equilibrium
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Toolkit: Section 17.12 "Production
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Figure 5.22 Julio and Hannah’s Pr
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EXERCISES 1. Would you expect to ge
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6.1 The Goal of a Firm LEARNING OBJ
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Figure 6.3 The Profits of a Firm We
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Price ($) Quantity 0 100 2 90 4 80
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Figure 6.6 The Elasticity of Demand
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Figure 6.8 Finding the Demand Curve
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Figure 6.10 Revenues Gained and Los
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Figure 6.12 Marginal Revenue and De
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CHECKING YOUR UNDERSTANDING 1. Earl
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Figure 6.15 An Example of a Cost Fu
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Figure 6.17 Setting the Price or Se
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4. If the optimal price is less tha
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6.5 The Supply Curve of a Competiti
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Table 6.5 Costs of Production: Incr
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EXERCISES 1. We suggested that a gr
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Tigers’ Merchandise Off to Roarin
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One way to summarize this behavior
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We typically expect that marginal c
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Figure 7.5 Market Equilibrium In a
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Figure 7.6 A Shift in the Supply Cu
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Comparative Statics The approach th
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The example in Table 7.4 "Calculati
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Figure 7.15 Surplus Away from the M
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Toolkit: Section 17.3 "The Labor Ma
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KEY TAKEAWAYS The supply-and-demand
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Figure 7.21 An Increase in Marginal
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KEY TAKEAWAYS Even if markets are n
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The supply-and-demand framework can
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Figure 8.2 Walmart: Growing Jobs? S
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demand in the labor market. In the
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Figure 8.5 The Technology of a Firm
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marginal product of labor. In creat
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Figure 8.8 The Cost Function The co
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We can see from this equation that
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Figure 8.12 The Effect of a Change
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Figure 8.14 The Effect of a Change
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Production" are based on the follow
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Suppose you ask this question just
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to a job offer is very important fo
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Steven J. Davis, John C. Haltiwange
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EXERCISES 1. A statistic called “
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Road Map This chapter begins with a
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stocks traded in an exchange that s
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The Foreign Exchange Market Further
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Toolkit: Section 17.5 "Discounted P
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Outcome (Number of Oranges) Probabi
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KEY TAKEAWAYS The value of an asset
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The supply side is shown in part (a
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We have also discovered that, in ge
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caution: even if markets are not al
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Figure 9.9 Equilibrium Asset Prices
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EXERCISES 1. List the factors you t
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Burger King in Georgia or Arby’s
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Road Map Because the minimum wage s
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The first increment of the proposal
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wage or the real equilibrium quanti
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Inflation and the Minimum Wage Alth
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In part (a) of Figure 10.9 "Deadwei
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Figure 10.11 The Employment Effect
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To talk about distribution, we need
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Figure 10.14 Effects of an Increase
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LEARNING OBJECTIVES 1. How do econo
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adults.) Figure 10.18 "Teenage Unem
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economists, particularly because th
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EXERCISES 1. List three jobs you th
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some value. In addition, if the mar
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29, 2007, accessed January 29, 2011
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Toolkit: Section 17.11 "Efficiency
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possible to start bringing supplies
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Suppose you want to purchase a book
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In part (a) of Figure 11.9 "Tax Inc
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looked at. Figure 11.12 The Differe
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Figure 11.13 The Production Possibi
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Tariffs Where quotas are the equiva
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unable to migrate, then the equilib
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“Hiding in the Shadows: The Growt
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EXERCISES 1. List three additional
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including taxes on the income peopl
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Figure 12.2 The Lorenz Curve The mo
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Table 12.4 "Gini Coefficient over T
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Measure 1989 Quintile 1994 Quintile
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KEY TAKEAWAYS The Lorenz curve show
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skills, but these are much more com
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Economic forces can mitigate discri
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CHECKING YOUR UNDERSTANDING 1. Draw
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Toolkit: Section 17.6 "The Credit M
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means that the total number of choc
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Incentives Redistribution is more t
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Not all transfers are public; some
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EXERCISES 1. Draw a Lorenz curve fo
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the Cuyahoga River in Ohio was so p
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We will get to Mexico City shortly.
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Social Dilemma Air pollution and se
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the time of other drivers on the ro
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associated with production by a fir
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Key Insights As the exchange rate i
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The concept of correlation is quite
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