1. Monopsony Question
   1. Sketch a graph of a monopsony equilibrium and label the shortage that is typically the case in a monopsony equilibrium. (8 points)
   2. What is it about the nursing labor market that makes economists think that is a good example of a monopsony market? (8 points)
2. Which do you expect to be more elastic, the demand for hospital care in general or the demand for hospital care at a specific hospital? Explain (8 points)
3. Using a picture of an indifference curve, illustrate graphically and explain in words the concept of diminishing marginal returns / utility. (8 points)
4. Adverse Selection Questions
   1. Sketch a graph of what the insurance market equilibrium looks like if health status is public information and there are no regulations on prices other than the fact that the insurance market is perfectly competitive. (8 points)
   2. Explain using a graph and your own words why a pooling equilibrium will not hold when health status is private information. (8 points)
   3. Sketch a graph of a situation where a separating equilibrium exists and explain in your words why it holds. (8 points)
   4. Explain why the intuition behind how the equilibrium in your answer to part a (when health status is public information) differs from the equilibrium in your answer to part c (when health status is private information). (8 points)

1. Sketch a graph of a situation where a separating equilibrium does NOT exist and explain why . (8 points)
2. Briefly explain how Medicare's Prospective Payment System changed the financial incentives a hospital faced when deciding whether or not to keep a Medicare patient in the hospital for an additional day. (8 points)
3. We learned in class that the federal government helps states cover the cost of their Medicaid program. Is this federal support equal across all states or is it more generous to poor states? Briefly explain the justification for this policy. (8 points)
4. If doctors make more money than lawyers, does that mean that they are getting a better return on their investment? Explain your answer using the concept of the internal rate of return. (8 points)