Suppose That a Central Planner in a Country Determines How

question 132

Multiple Choice

Suppose that a central planner in a country determines how much a physician is paid based on the value of inputs to his or her service.So,a specialist such as an oncologist would be paid more than a primary care physician.Which of the following best describes an incentive problem created by this method of payment determination?

• A) It is difficult for a central planner to know the value of inputs.
• B) It is difficult to coordinate the care provided by a specialist and a primary care doctor.
• C) All else being equal, patients would rather see specialists even for minor problems.
• D) All else being equal, oncologists would adopt a new treatment if it is more expensive.

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Definitions:

Opportunity Cost

The value of the next-best alternative that is foregone when making a decision, representing the trade-offs associated with choosing one option over another.

Differential Cost

The difference in cost between two alternative decisions or changes in output levels.

Direct Cost

Expenses that can be directly traced to producing specific goods or services, such as raw materials and direct labor.

Indirect Cost

Costs not directly traceable to a specific product or project, such as utilities or rent.