Assignment:
1. Consider a production function for primary care medical services, where the quantity of services produced is determined by the quantities of capital, materials, physician labor input, and non-physician labor inputs used in the production process. The market demand for these specific inputs can be characterized as "derived" from the market demand for primary care services. In this context, suppose that nationally, medical licensure boards eased scope of practice constraints on the clinical activities of currently licensed nurse practitioners and physician assistants, to enable them to perform more primary care functions without any additional training requirements or direct physician supervision. Answer each of the following questions as TRUE or FALSE, based on your understanding of economic theory as it pertains to basic market analysis (supply and demand), and provide a brief rationale for your answer:
a. In the market for primary care providers, the wages of employee nurse practitioners and physician assistants probably would increase, at least over the short term.
b. Physicians when completing medical school might be more likely to pursue specialist residency programs compared to a primary care residency.
c. Access to primary care services likely would improve in isolated rural areas over time.
2. Consider the market demand schedule for acetaminophen (Tylenol), a pain reliever. Assuming there is no health insurance coverage in the market, what happens to: i) the market demand schedule for acetaminophen; and ii) the equilibrium market price of acetaminophen, given the following changes in market conditions? Explain your answers.
a. The price of ibuprofen (Motrin), another type of pain reliever, increases.
b. A new government study concludes frequent use of acetaminophen significantly increases the risk of liver failure.
3. List three factors affecting the magnitude of consumers' response to a change in the price product in terms of the change in quantity they are willing to purchase. Explain briefly.
4. Patrick eats 60 Twinkies and takes 60 metformin tablets every month. His income is $180/month. He pays $2 per Twinkie and $1 per metformin tablet. The 60th Twinkie he eats increases his overall utility by 50 units, and the 60th metformin tablet he takes increases his utility by 20 units.
a. This combination of Twinkies and metformin tablets does not maximize utility for Patrick. Explain why not.
b. What does Patrick need to do to increase his overall utility? At what point will he be unable to increase utility further? Explain.