1ECON 340 Midterm 2 Study GuideThe different nature of the health problems in poor countries versus rich countries● In poor countries, infectious diseases are still a problem because of the cost and accessibility of resources. Rural areas do not have access to health centers, and even if they do, the price for treatment is expensive. With diseases like malaria, their occurrence is due to environmental circumstances, such as swampy areas, where there are not resources to drain the water and end disease. Many of the diseases in poorer countries are preventable by simple things such as shoes and condoms. This is an overall theme. ○ Also in poor countries due to the lack of investment in infrastructure prevention ofminor diseases can result in deaths. E.g. The infrastructure of a country has a direct benefit and indirect benefit. One example of a direct benefit is a reduction in drinking-water related deaths by providing clean drinking water. An indirect benefit is economic growth.○ 1. How the different nature of health problems (eg. Infectious vs. chronic diseases) in poor countries manifests itself in different public health priorities● Because infectious diseases tend to target younger children and are spread from person to person, countries focus their resources on solving these problems as opposed to chronic diseases, which are predominant in the elderly and are normally self-inflicted (cardiovascular disease, etc.).● Additionally, in the case of infectious diseases - treating them can result in positive externalities. As evidenced when children in one experiment took deworming pills, their peers who weren’t taking the pills had a lower infection rate. Chronic diseases have no such externalities, and thus, would be economically inefficient to deal with. ○ Poor countries are usually inflicted with infectious disease while richer countries have problems with chronic diseases.2. Factors that affect family investments in health inputs● Income: In general the greater the income, the more a family with invest in health services ● Education: The better the education of the adults in the family, the more willing they are toinvest in health services. This has to do with their greater access to information and understanding the consequences of not doing so. ● The Opportunity Cost ( - ): This is a negative because the time and money spent speaking health services could possibly be better used elsewhere. This is also time that could be spent doing other things, like earning income. ● Personal Preference: Which is a positive because more mothers are invested in the health of their children.● Relative price of health services: Which tend to be much higher than other services so it deters people from seeking care. 3. When are subsidies justified on economic efficiency grounds and at what levels of the system and for what kinds of services? The importance of externalities and market failures for this question. What is the empirical evidence related to this question● Subsidies are justified on basis of market failure (efficiency grounds). Subsidies should be rendered for medication for infectious diseases since the consumption of the medication can generate positive externality by keeping the surrounding people healthy. Without the subsidy, private benefit < social benefit, resulting in an underconsumption of the medication. Hence, to encourage consumption, subsidies have to be provided to reduce the private costs associated with consumption.2● http :// www . who . int / bulletin / archives /78(1)66. pdf● What levels of the system?○● What kinds of services?○ Government health subsidies directed towards curative health care are poorly targeted to poor households. ○ Governments subsidize the provision of private goods (such as health care, education and many infrastructure services) the supply is usually rationed. 4. Economics regarding combating HIV/AIDSa. What is the nature of the problem, where and who?b. Prevention versus treatment, at what costs, issues of quality of treatment delivery, opportunity costs● The nature of the problem- people engaging in heterosexual sex get inflicted with HIV AIDS which has no cure to date. People in sub-saharan africa are affected the most (close to 2/3 of total affected people) and it affects particularly young to middle-age people, not the old. There is no strong conclusion as to whether the rich or poor are moreprone to HIV AIDS.5. Overvalued exchange rates as a form of taxation of farmersa. This is indirect tax rates - refer to question 216. The market and nonmarket returns to schooling● Market: additional labor market you get from schooling● Nonmarket: better health for you and your children7. Allocative efficiency impacts of parental schooling on child schooling and child health8. Costs of schooling: foregone income and cash costs and how they vary by level of schoolinga. Forgone income - increases as level of schooling increases, highest in tertiary educationb. Private costs (cash costs?) increases as level of schooling increases9. Private and social rates of return to schooling: how they are computed and what they mean● Social costs - average per student cost of hiring teacher, supplies, etc ○ Social costs increase by a lot the higher the level of education - increase a lot more than private costs do, especially in university education● Private costs - costs to student ○ Private costs increase the higher the level of education, but not by as much as social costs● In developing countries we think that social and private benefits are the same – benefits are what you get from marginal earnings○ Not true in industrial countries – social benefits aren’t the same as private benefits - social benefits are greater because of income tax○ Poor developing countries don’t have much income tax● Private benefits are after tax benefits – increase in after tax earnings, whereas social benefits are increase in before tax earnings● · Formula: Rate of Return = ∑(from t=0 to years of schooling) (Bt – Ct) (1 + r)t ○ Average rates of return are highest for primary schooling in both social and private○ Higher education (tertiary) are much higher in private than social rates of return because you account for subsidies3○ Private returns may be higher for university workers than for primary school workers○ Reason is technological change that