Question 1

There are four major methods of economic evaluation used in health care decision making.  The four methods are cost of illness studies, cost-benefit analysis, cost-utility analysis and cost-effectiveness analysis.  Please note that your textbook treats cost-utility analysis as a special form of cost-effectiveness analysis.  You have been assigned to evaluate a new diabetes medication.  Write an essay in which you address the following four questions.

Which of the four types of economic evaluation would you use to perform your evaluation?

What advantages does the type of evaluation you selected have over the other three for this study?

What are some of the disadvantages or limitations of the evaluation you selected?

What information would you need to gather to perform your evaluation?

Question 2 

Answer the following true/false questions by stating if the statement is true or false and by providing an explanation for the answer you gave.  Your explanation should be detailed enough so that it establishes not only is your answer correct but that the opposite answer would be incorrect.   All points for the true/false questions will be given for the explanation.

A. Lowering the legal age to purchase products would increase the supply of cigarettes.  (T or F)

B. Increasing the price of cigarettes would decrease the quantity demanded.  (T or F)

C. If a new excise tax of fifty cents is levied on suppliers of packs of cigarettes, consumers will end up paying fifty cents more per pack.  (Assume an upward sloping supply curve and a downward sloping demand curve.  T or F)

Refer to the table below to answer the following questions.

Price $            Quantity Demanded Packs         Quantity Supplied Packs

1                                      80                                                             5

5                                     60                                                              60

10                                   40                                                               100

15                                    18                                                               170

20                                    0                                                                 350

D.  A surplus of 60 packs would exist at a price of $10.00.  (T or F)

E.  A price ceiling of $15.00 would cause a shortage of cigarettes.  (T or F)

Question 3

Demand studies in health care have provided estimates of both income and price elasticity.  Estimates of income elasticity are usually above +1.0.  Estimates of price elasticity typically range between -0.1 and -.75 (with hospital services at the lower end and elective services at the upper end).  Write an essay in which you discuss what information these estimates convey and what the significances of these estimates are to policy makers?
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