A. True/False Explain. Indicate whether each of the following statements is true or false and then explain why you think this. Include in your explanation any pertinent institutional details and economic reasoning (including appropriate graphs and equations). Please provide concise, clear answers with minimal irrelevant detail. Explanation is required.
1. Small area variations in healthcare spending are generally regarded as an indication that there is some source of inefficiency in healthcare delivery. True or false: if the health production function does not have diminishing marginal returns, then it is possible that geographic variations in health spending could actually be an efficient outcome.

2. According to the Dartmouth Atlas of Healthcare, most of the variation in Medicare spending across different regions in the US can be explained by the underuse of important preventative care services in many areas of the country.

3. An empirical observation that led to the development of the supplier-induced demand hypothesis is that when the supply of physicians in a market increases, the price also increases,which defies the basic rules of supply of demand.

4. State policies that mandated the release of physician report cards, which contained information about the risk-adjusted mortality rates of the patients of cardiac surgeons, were greatly beneficialto consumers by allowing them to more efficiently search for high quality surgeons.

5. Bhattacharya (2005) concluded that the reason why medical specialists earn much higher salaries than primary care physicians is because specialists are selected from only the best medical students, and they tend to work more hours per week.

6. Suppose you just graduated from college and are deciding on a career. Your four career options, along with your salary in each of the four earnings periods, are displayed below. Assume that any career will only last four periods before retirement.
Salary
Occupation          Period 0    Period 1 Period 2 Period 3
Opthalmologist       -5                1             10       12
Accountant                2                3                4          5
Yoga Instructor          1                1                1          1
Pro Athlete             15                0                0          0
a. Assume the per-period discount factor is 0.95. What is the value of the per-period interest rate that corresponds to this discount factor?
b. Still assuming the discount factor is 0.95, what are the net present values of becoming an ophthalmologist and of becoming an accountant. Which career maximizes the net present value of earnings?(Payoffs in period 0 do not need to be discounted at all.)
c. Is the internal rate of return of becoming an ophthalmologist as opposed to an accountant greater than or less than 15%?(Just a reminder that you must show your work to receive credit on all analytical questions.)

7. A small town, population 3, is deciding how much money to spend on building a new public hospital. Clearly this hospital will require several high-tech proton-beam inhibitors(PBIs), a public good, but the residents of the town cannot decide how many PBIs to purchase. Each resident's demand function for PBIsis below, where Q is the number of PBIs and Pis the amount of money each person is willing to pay in taxes per PBI to provide this public good.
Person 1: P = 3500 –500 Q
Person 2: P = 2000 –150 Q
Person 3: P = 0
Suppose the market price to purchase one PBI is 500.The mayor of the town is currently campaigning in a tightly contested election. According to the median voter theorem, how many PBIs will the mayor decide to purchase for the public hospital on behalf of the residents of the town.

Short Answers
8. Dranove and Wehner (1994) argue that the statistical evidence used to support the supplier-induced demand hypothesis is invalid because they find that the same statistical techniques also suggest that obstetricians induce demand. Briefly explain the supplier-induced demand hypothesis and why this finding by Dranove and Wehner is evidence against the hypothesis.

A. True/False Explain. Indicate whether each of the following state...