People living in Boston are hospitalized about 1.5 times as often as those living in New Haven, yet their health outcomes, based on age-specific mortality rates, appear to be identical.Does this mean that hospital care has no ability to improve health?

1. If the
   elasticity of aggregate cigarette demand with respect to advertising were
   0.15, by extrapolation, what is the effect of each of the following on
   cigarette consumption:

(a)10%
reduction in advertising?

(b)50%
reduction in advertising?

(c)Ban
on cigarette advertising, i.e. 100% reduction in advertising?

(15
points, 5 points each)

1. In
   Becker and Murphy’s “rational addicts” model, smokers are perfectly aware
   of the potential for smoking to cause addiction, and they take this into
   account when deciding whether or not to smoke.Suppose a new technology-such as a
   nicotine patch-is invented that makes quitting smoking much easier (less
   costly) for an addict.If Becker
   and Murphy’s model is correct, what effect would you expect this invention
   to have on people’s smoking behavior?
   Would your answer be different for teenagers than for long-term
   smokers?(10 points)

I.
The Production of Health

1. Provide
   an example of a situation where marginal productivity would decline
   because of an increase on the extensive
   margin.Please try to use a
   real-life example for a specific medical treatment.(15 points)
2. The
   CPI for hospital care (as one example) measures the cost of a two-person
   “hospital room and board” charge as an important part of the CPI hospital
   index.The cost of a day in the hospital
   has increased from $329 in 1980 to $2025 in 2010.

The CPI was 82.4 in 1980 and 218.06
in 2010 and the Medical CPI was 74.9 in 1980 and 388.4 in 2010.

(a)From
the data given, can we conclude that the price of a day in the hospital has
increased dramatically in 30 years?

(b)Does the
difference in the change in the general CPI compared to the change in the
Medical CPI clearly indicate that there has been more inflation in the medical
industry than overall in the economy?

(c)In
his 2014 State of the Union Address, the President claimed that rising cost of
health care“eats up more and more of our savings each year”.
Are patients definitely worse off with
the higher prices?

(15
points, 5 points each)

1. People
   living in Boston are hospitalized about 1.5 times as often as those living
   in New Haven, yet their health outcomes, based on age-specific mortality
   rates, appear to be identical.Does
   this mean that hospital care has no ability to improve health? (10 points)