14.01SC | Fall 2011 | Undergraduate

Principles of Microeconomics

Unit 7: Equity and Efficiency

Healthcare Economics

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Session Overview

In 2010, President Obama signed the Patient Protection and Affordable Care Act (PPACA) into law to address issues of access and cost in healthcare. In this lecture, we discuss these issues in healthcare and the role of the PPACA in addressing these issues to demonstrate how a public policy tool can be used to address many of the economic problems discussed throughout the course.

The overuse of medical services is a key problem in healthcare. Image courtesy of University of Nottingham on Flickr.

Keywords: Healthcare; medical costs; medical insurance; PPACA; moral hazard.

Session Activities

Lecture Videos

Check Yourself

Concept Quiz

This concept quiz covers key vocabulary terms and also tests your intuitive understanding of the material covered in this session. Complete this quiz before moving on to the next session to make sure you understand the concepts required to solve the mathematical and graphical problems that are the basis of this course.

Question 1

Which of the following is NOT a feature of the PPACA?


The PPACA requires all individuals to be covered by a healthcare insurance policy to fix the adverse selection problem and allow insurance companies to price insurance fairly. In turns, it forbids insurance companies from discriminating in health insurance costs. Furthermore, to guarantee that everyone can afford insurance, it provides subsidies for low income individuals.

Question 2

Which of the following is an example of the moral hazard resulting from health insurance coverage?


Individuals covered by health insurance are more likely to engage in risky behaviors since they dont bear the financial cost of injury. Furthermore, individuals are more likely to use medical services, and healthcare providers are more likely to provide more medical care than necessary.

Further Study

These optional resources are provided for students that wish to explore this topic more fully.

Additional Readings

The following article was referenced in lecture:

Gawande, Atul. “The Cost Conundrum.” The New Yorker, June 1, 2009.

To learn more about healthcare reform, check out Professor Gruber’s graphic novel:

Gruber, Jonathan. Health Care Reform: What It Is, Why It’s Necessary, How It Works. Hill and Wang, 2011. ISBN: 9780809053971.

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Course Info

As Taught In
Fall 2011
Learning Resource Types
Lecture Videos
Recitation Videos
Problem Sets with Solutions
Exams with Solutions
Lecture Notes
Exam Materials
Problem Sets