Draw a bowed-out PPC with an aggregate measure of medical services, Q, on the horizontal axis and an aggregate measure of all other goods (and services), Z, on the structure and performance. A health economy is structured in a particular way, and this health economy structure is discussed in great detail in Chapter 4. Structure shows up in the ways various organizations are designed in terms of their size and scope, the mix of market activities and government involvement in the health economy, and fi nancing and reimbursement mechanisms, among others. This underlying structure helps to establish the prevailing incentives in a health economy and thereby infl uences how people, organizations, and government itself, behave. If incentives are distorted because of structural defects, then suboptimal performance likely results in terms of ineffi cient and inequitable outcomes. Given the suboptimal performance, solutions can be proposed and public policies can be designed to remedy the situation. In particular, policies can be changed to either indirectly affect behavior through a restructuring of the system or directly by introducing conduct remedies. Just about every chapter in the book addresses an issue where incentives are discussed or public policy plays a role. As mentioned previously, health economists are most interested in the effi ciency of outcomes because resources are scarce. Unfortunately, effi ciency is often diffi cult to gauge or measure in practice. An alternative is to design a theoretical benchmark where effi ciency can be attained; then compare the real world, in terms of the existing incentives because of its structure, to that theoretical benchmark. Our benchmark for allocative effi ciency (the point at which marginal social benefi t equals marginal social cost) is developed in Chapter 3. This benchmark is expanded upon in Chapter 8. The most discussion concerning public policy shows up in Basic Health Care Economic Tools and Institutions vertical axis. Discuss the implications of the following changes on the quantities of medical services and all other goods. A. A movement down along the curve.
B. A movement from the interior of the curve to a northeasterly point on the curve.
C. An increase in the quantity of labor in the economy.
D. A technological discovery that increases the production of Z. If it were your choice, where would you choose to produce on the PPC? Why?