DemandandSupply.Health

7/26/2019 DemandandSupply.Health

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Economics


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Shift in Demand Curve

Demand curve may shift tothe left Not willing to pay as much

Thus price drops

Due to drop in income

Demand curve may shift tothe right willing to pay more for

product Due to: Increased population

Increased income

Changes in tasteDemand curve shift to the left


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Shift in Supply Curve

If it becomes easier toproduce a product,supply curve will shiftto right More farmland More children for labor Fertilizer available Water available

Technology available Price drops


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DETERMINANTS OF DEMANDPRICE

POPULATION

INCREASE IN POPULATION= DEMAND INCREASE

DECREASE IN POPULATION= DEMAND DECREASE

***SOME EXCEPTIONS

PRICES OF RELATEDGOODS

SUBSTITUTE GOODS =

Goods that can be used toreplace the purchase of similargoods. (Butter &Margarine)

*An increase in a productsprice leads to an increaseddemand for the productssubstitute goods.


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Income Elasticity of Demand

INCOME INCOME INCREASE

= DEMANDINCREASE

INCOME DECREASE= DEMANDDECREASE

***SOMEEXCEPTIONS

East Java market


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Engels Law

The proportion ofhousehold budgetspent on food

decreases as incomeincreases Wealthy spend less %

of their wealth on food


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Bennetts Law

The ratio of starchyfoods in the diet fallsas income rises

Poor eat more starchy

foods Grains Root crops

Wealthy eat moremeat, fruit, vegetables


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..DETERMINANTS OF DEMAND


Complementary Goods Goods that are commonlyused with other goods.(Paintbrush & Paint)

*An increase in a products priceleads to an decreased demandfor that productscomplementary goods.


SUBSTITUTE GOODS =Goods that can be used toreplace the purchase of similargoods. (Butter &Margarine)

*An increase in a productsprice leads to an increaseddemand for the productssubstitute goods.


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DETERMINANTS OF DEMAND

COUNSUMER EXPECTATIONS

Expectations of increased income = demandincrease

Expectations of decreased income = demanddecrease

Expectations of increased in PRICE = demandincrease in the current period

Expectations of decreased in price = demanddecrease in the current period


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DETERMINANTS OF DEMANDCOUNSUMER TASTES AND

PREFERENCES

POPULARITY INCREASE =DEMAND INCREASE

POPULARITY DECREASE =DEMAND DECREASE

MARKET SIZE

MARKET SIZE INCREASE =DEMAND INCREASE

MARKET SIZE DECREASE =

DEMAND DECREASE


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Increase In The Demand For Ice Cream

Tastes & preferences

Demand curve shifts right

Shortage at initial price

P to restore equilibrium (sellers respond, Qs)

New equilibrium: higher P & higher Q

D Disequilibrium

P adjustment

Qs response Law of S

Hot Weather


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Increase In The Demand For Ice Cream

Price ofIce-Cream

Cone

Quantity ofIce-Cream Cones

SupplySupply

Initialequilibrium

Initialequilibrium

DD

DD

3. . . . and a higherquantity sold.3. . . . and a higherquantity sold.

2. . . . resultingin a higherprice . . .



1. Hot weather increasesthe demand for ice cream . . .1. Hot weather increasesthe demand for ice cream . . .

2.00

7

2.00

7

New equilibrium$2.50

10

New equilibrium$2.50

10

$2.50

10


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Factors That Shift The Demand Curve


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DETERMINANTS OF SUPPLY

Price

Number of sellers

Cost of Production

Availability of inputs

Taxes

Consumers Price Expectation

h Shif h S l C


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Factors That Shift The Supply Curve

M k Sh k


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Market Shocks

What Happens to Price and QuantityWhen Supply or Demand Shifts?


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Law of Demand and Supply

When there is shortage , price will increase;When there is surplus, price will decrease

Qd> Qs , price is high

Qs>Qd, price is low

Qd=Qd, price is constant


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Price QuantityDemand

QuantitySupply

MarketCondition

PriceCondition

20 100 20 Shortage High

35 80 40 Shortage High

50 60 60 Equilibrium Constant

65 40 80 Surplus Low

80 20 100 Surplus Low

M k t Effi i


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Market Efficiency

The Invisible Hand

guides decision-making

rewards efficient producers and consumers

goods society wants prices society is willing and able to pay

M k t & C titi


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Markets & Competition

Competition Regulates Markets

buyers and sellers both gain from exchange

prices adjust to encourage trade

markets clear competition directs goods & services

(resources) to their most highly-valued uses



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Market Forces & Equilibrium

Price floats to where Qs = Qd and the market clears.

This price facilitates all transactions that can

improve the well-being of market participants.

Goods purchased by those with highest value.

Goods produced by those with lowest opportunitycost.

The well-being of society is maximized.


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HEALTH MARKET


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DEMAND AND SUPPLY

OF

HEALTH CARE

Analysis of how the basic theory ineconomics maybe applied to health

care


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outline The problem of scarcity is

exceptionally acute in healthsector

Assumptions : consumers areutility maximizers

The demand and supply ofhealth care may not behave inthe way that economic theorypredicts

The possibility of market

failure

Conditions for ideal market :certainty, no externalities,perfect knowledge, consumersto act free of self interestedadvice from health care

providers, small suppliers Clinical iceberg

Imperfect agency

Conditions favoring demand


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FRAMEWORK OF HEALTH CARE MARKET

1. What health care interventions or treatmentsshould be available?

2. How should these treatments be provided?

3. Who should receive these treatments?


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APPLYING THE THEORY OF DEMAND TO

HEALTH CARE1. Are consumers of health care utility maximizers?2. Is there an inverse relationship between the price

of health care and the quantity of health care

demanded?3. Is the quantity of health care demanded affected

by the level of income?

4. To what extent is the quantity of health care

demanded affected by the prices of other goods5. Is the amount of health care demanded affected

by tastes and trends?


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Are consumers of health careutility maximizers?

Is there an inverse relationshipbetween the price of health care

and the quantity of health caredemanded?

Health care is demanded if it isabsolutely necessity

Short-term costs overshadowslong term returns

Standard economic theory

Demand for health care may not

be well affected by pricea. A rise in the price of healthcare

- constraint of income

-absolute necessity

b. A fall in the price of healthcare

- involves disutility


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Is the quantity of health caredemanded affected by thelevel of income?

To what extent is the quantityof health care demandedaffected by the prices of

other goods

Normal goods exhibits positiverelationship

Budget constraint

Largely unaffected

Factors affecting health : diet,level of exercise, livingconditions and lifestyle

Related Goods : Substituteand Complimentary Goods


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Is the amount of health caredemanded affected by tastes

and trends?

Factors affecting tastes andpreferences : convenience,custom and attitudes


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APPLYING THE THEORY OF SUPPLY TOHEALTH CARE1. Are health care providers

profit maximizers?

2. Is there a positive relationship

between the price of healthcare and the quantity ofhealth care supplied?

3. What impact do the costs ofproduction have on supply ofhealth care?

4. How do changes intechnology affect the quantityof health care supplied?

5. To what extent is the quantityof health care suppliedaffected by the prices of other

goods?


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Are health care providersprofit maximizers?

Is there a positive relationshipbetween the price of healthcare and the quantity of

health care supplied? Benevolence maximize thewelfare of the patients,regardless of the costs

WORLD OF SCARCITY

Profit maximization Income and Profit :

determinant for health carelevel provision

1. Rise in Price Level upwardsloping

2. A fall in price level- upwardsloping


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What impact do the costs ofproduction have on supplyof health care?

How do changes in technologyaffect the quantity of healthcare supplied?

Cost of Production affects levelof supply

Budget constraint

Technology supply larger andbetter quantities of goods andservices

Medical Technology,

Laboratory Faciltiies

Nurses

Physicians


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To what extent is the quantityof health care suppliedaffected by the prices of

other goods?

Directly affected

Health care providerspecializing obstetricsprocedure may decide to

concentrate more ongynecological procedures


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ISSUES ON MARKET FAILURE IN THE

HEALTH SECTOR1. Certainty2. No externalities : spillovers from other peoples

production or consumption of goods that affectan individual in either a positive or negativeway

3. Perfect Knowledge4. Consumers to act free of self interested advice

from health care providers5. Several small suppliers to promote genuine

competition


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PERFECT KNOWLEDGE

PATIENT HEALTH CARE PROVIDERS

Information about the health

status Information about available

treatments

Information about theeffectiveness of treatment

Medical Knowledge

Knowledge of the PatientsCircumstances

Knowledge of the patientsindividual preference

1. Health care providers may not have the information requiredto act as a perfect agent

2. Health care providers may exploit the ignorance of consumersin order to maximize their own utility


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NATURE OF HEALTH CAREDERIVED DEMAND SUPPLIER INDUCED

DEMAND

1. Consumption benefits

2. Investment benefits

1. Fee for service

reimbursement2. Third party payment

3. Limited peer review

4. Infrequent purchase ofhealth care

5. Medico-judicial environment


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CLINICAL ICEBERG

Inpatients

Outpatients

GP

Individuals with symptomstaking non-health action

Individuals withsymptoms taking no action

Individuals with nosymptoms


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FACTORS AFFECTING ILLNESS BEHAVIOR The visibility and recognisability of symptoms The extent to which the symptoms are perceive as serious The extent to which symptoms disrupt family, work and other

social activities The frequency and persistence of the appearance of symptoms The tolerance threshold of those who are exposed to and

evaluate symptoms The available information, knowledge and cultural

assumptions to evaluate The needs competing with illness responses

The possible competing interpretations that can be assignedto the symptoms once they are recognised The availability of treatment resources The monetary costs of taking actions


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Other factors affecting demand for

health 1. size of population

2. health status of population

3. method of hospital admission

4. cost to patients of consumption

5. supply and availability of health resources and

unmet need 6.clinical uncertainty


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CONDITIONS FAVOURING DEMAND

INDUCEMENT1. Fee for service reimbursement

2. Third party payment

3. Limited peer review

4. Infrequent purchase of health care

5. Medico-judicial environment


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TRENDS IN THE HEALTH MARKET


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DemandandSupply.Health

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