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Question 3 The primary intent of medical malpractice law is to protect patients against professional negligence by a health care provider, which results in injury or death to the patient. However, proponents of medical liability reform argue that in fact these laws limit patient access to health care by driving doctors out of business or encouraging doctors not to use high-risk but potentially beneficial procedures. On June 11, 2003, Texas Governor Perry signed House Bill 4, a medical liability reform that greatly limited the amount of damages for which a physician could be held liable. You are provided the data table below, which indicates the number of doctors per 100,000 patients for Texas as well as for states neighboring the Lone Star State (nickname for TX). 5 Table 1: Does per 100,000 Patients State Year Doctors Texas 1998 152 Texas 2002 158 Texas 2006 175 Neighbors 1998 196 Neighbors 2002 189 Neighbors 2006 180 1. Propose a time-series estimator for the impact of Bill 4 on the doctor to patient ratio in TX. (a) Provide the symbolic formula for the estimator as well as the numerical estimate. Provide a brief description of the estimator. (b) Discuss the key assumption required for the estimator to be valid (no bias). (c) Discuss a scenario under which each assumption would be violated (bias). 2. Propose a cross-sectional estimator for the impact of Bill 4 on the doctor to patient ratio in TX. (a) Provide the symbolic formula for the estimator as well as the numerical estimate. Provide a brief description of the estimator. (b) Discuss the key assumption required for the estimator to be valid (no bias). (c) Discuss a scenario under which each assumption would be violated (bias). 3. Instead, construct a difference-in-difference estimator for the impact of Bill 4 on the doctor to patient ratio in TX that addresses the issues raised with the time-series and cross-sectional estimators. (a) Provide the symbolic formula for the estimator as well as the numerical estimate. Provide a brief description of the estimator. (b) Explain the key assumption required for the estimator to be valid. (c) Discuss a scenario under which this assumption would be violated. (d) Set up a test of your key assumption above using the available data. Does the assumption appear valid?1. a. What is the difference (conceptually) between the short run price and income elasticities of the demand for gasoline and the long run price and income elasticities of the demand for gasoline? b. Why are measured long-run elasticities larger than measured short-run elasticities? c. Assume that the government offered a payments of (say) $1000 to car owners who scrapped cars older than 8 years. How would this affect the measured long-run price elasticity of the demand for gasoline? 2. Assume that a consumer has a choice between the following three different air conditioner models that have the same cooling capacity but different energy efficiency ratings. The air conditioners last for ten years Model Purchase Price Annual Operating Cost $200 $75 2 $250 $60 $300 $50 a. Calculate the total life-cycle cost for each model assuming that the AC unit is purchased at the beginning of year 1 and the annual interest rate is 10% per year b. Which model would a consumer with a 10% discount rate choose? c. Which model would a consumer with a 15% discount rate choose? d. How high would a consumer's discount rate have to be for her to choose Model #1?1. (60) In section 2 the authors estimate the following demand equation: In Git = Bo + Bi In Pje + P2In Y,tej + Ejt where Git is per capita gasoline consumption in gallons in month j and year t, Pit is thee real retail price of gasoline in month j and year t, Yet is real per capita disposable income in month j and year t, ; represents unobserved demand factors that vary at the month level and eat is a mean zero error term. a) (10) What have the authors assumed about the price elasticity of demand when they wrote down the demand equation in this form? Remember the price elasticity of demand Ep = $8 7- b) (10) Go to table 1 in the appendix, now assuming the authors have obtained unbiased estimates of the parameters So, and &2 what do they mean? (eg. the coefficient , is -0.335 in the period 1975-1980, this represents...) c) (10) Interpret the values of the monthly unobserved demand factors (6,)? What are these relative to? What can you say about the yearly pattern of gasoline demand from these coefficients? d) (10) From the information presented in this table calculate the appropriate t- statistics for each of the S's to test if it is different from 0. You will need the standard errors for each coefficient which are presented in brackets below the respective coefficient value in the table. For instance the standard error for the coefficient f in the period 1975-1980 is 0.024. e) (10) What do the ** next to some of the entries in the table indicate? How are they related to the t-statistics you calculated? f) (10) The table presents the adjusted R-squared statistic for the two regressions. What does this number mean? If we calculated the unadjusted R-squared values, can we say whether these are larger or smaller than the adjusted R- squared values of 0.84 and 0.94 in this table? 2. (30) In table 2 and table 3 in the appendix, two alternate specifications for the demand equation are compared with the original double-log model. a) (10) Under the linear specification for the period 1975-1980 the coefficient on the Price variable is -7.252. What is the implied elasticity of demand, assuming the linear model, if during a June month per capita demand was 40 gallons, and price was $1.70? b) (10) What is the implied elasticity of demand if during July demand is 5 gallons higher (due to a month specific effect) and price is the same? c) (10) Under the linear demand specification the demand elasticity varies within each period. Therefore the authors calculate an "average" elasticity of demand across each period. Do you think a time weighted or quantity weighted average is more reasonable and why?1:57 R 0 B/s attachment Final Exam 1. (20 points) The weekly demand for beer in Maltown is described by: P= 1000 - 20, where @ is measured as the number of six-packs consumed each week and P is the price of a six-pack. The marginal cost of producing a six-pack is constant at $8 and beer producers have no fixed costs. What is the equilibrium price and output if the Maltown beer market is perfectly competitive? What will the total amount of producer surplus in the competitive equilibrium? What will be the total amount of consumer surplus? b. What is the equilibrium price and output if the Maltown beer market is monopolized and the monopolist charges a single, uniform price to all consumers? What will be the value of producer surplus in this case? What will be the value of consumer surplus? c. What will be the equilibrium output if the Maltown beer market is monopolized but the monopolist can perfectly price discriminate? What will be the value of producer surplus in this case? What will be the value of consumer surplus? 2. (20 points) The Tower of London is a store of great treasure. It has been the seat of British government as well as the site of infamous political intrigue. It has housed notorious traitors, virtuous members of court, lions, bears, and ravens. Most famously perhaps, it has been and continues to be the repository of Britain's Crown Jewels. Almost as well-known as Her Majesty's Tower are the Yeoman Warders often called the Beefeaters who guard the fortress. It is an honor and a great privilege to serve as a Yeoman Warder. Historically, it was also a great opportunity to curich oneself at the public expense. It seems that a few hundred years ago. when the Tower also served as the store for much of Britain's gold, many of the guards could not resist the temptation to steal the occasional gold coin out of the treasury. Of course, if a guard was caught stealing, the guard was summarily dismissed. It seemed impossible though to watch the Beefeaters constantly and make sure that they never took anything. To do that would require hiring a second layer of guards and that would be expensive. Historians of the Tower have noted that shortly after this problem emerged, the Crown raised the basic pay of a Yeoman Warder to $7 per year, notably higher then the going market wage rate at that time of ES per year. Historians have also noted that to get a job as a Yeoman Warder it was not enough to apply. One also had to pay a big, up-front fee, i.e., any successful applicant had to make a one-time payment right at the start if they were actually to be hired. Comment on these developments. Why do you think that the British government decided to pay above market wages to its Beefeaters? Why do you think people paid to obtain Beefeater jobs? What other methods do you think the British monarchy might have used to achieve its objectives? 3. (20 points) In nearly each of the last 20 years, the faculty at Sloneybrook University has reviewed the course requirements that all of their students must fulfill to graduate. Such reviews are initiated in the Committee on Academic Policy (CAP), which is comprised of representatives from each of the academic departments. Proposed reforms typically include dropping some classes from the required list and adding in others. Any reform that is proposed by the CAP is then voted on by the entire Sloneybrook faculty. Yet despite this continuing effort, no major reform proposal has been adopted with the result that the set of courses required for the Sloneybrook degree has not changed in over two decades. In chronicling this failure, outsiders have noted the following features of the Sloneybrook decision-making process; a) departmental budgets and/or salaries are related to the number of students enrolled in departmental courses; b) there are a large number of required courses; c) faculty are risk averse; and d) the governance process is very inconsistent-the reform proposal that wins in one committee is later defeated in another committee or in a general faculty vote. Use these observations and what you know about group decision-making to analyze briefly the failure of the Sloneybrook faculty to reform its graduation course requirements, 4. (20 points) Imagine that Dry Gulch has two potential water suppliers. One is Northern Springs whose water is naturally carbonated but also somewhat "hard." The other is Southern Pellegrino whose water is crystal clear but not carbonated. The marketing department of each firm has worked out the following profit matrix depending on the price per 2 gallon container charged by each firm. Northern Spring's profits are shown as the first entry in each cell, e.g., if Northern Springs sets a price of 4 and Southern Pellegrino sets a price of 3, Northern Springs nets $25,000 in profits and Southern Pellegrino nets $30,000, Southern Pelligring's Price is: 3 24.24 30.25 36.20 42.12 25.30 32.32 41.30 48.24 Northern Springs' Price Is: 20.36 30.41 40.40 50.36 12.42 24.48 36.50 48.48 a. Suppose that the two firms set their prices simultaneously. What is the (Nash) equilibrium? b. Suppose that Northern Springs must set its price first, and stick with it, while Southern Pellegrino then reacts as best it can to the choice of Northern Springs. What is the price equilibrium in this case? c. Does going first help or hurt Northern Springs? 5. (20 points) Consider the following data on the relative price-cost markups for selected cars in different European Countries in 1997. Here. the markup is measured as the percentage of the price by which the O