Health Care Economics Essay

776 words - 4 pages


Economics can be defined as the science concerned with the production, distribution, and consumption of goods and services. In essence, it is the study of the material welfare of humankind (Apollo Group, 2010). Economics in health care is concerned not only with the financial aspects of the system, but how those financial elements impact patient care.

Supply and Demand

Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. Supply represents how much the market can offer and the correlation between price and how much ...view middle of the document...

The prediction that health care costs will go down if pools of insured individuals increase is a normative explanation and a microeconomic analysis that is a standard discussion of health care reform. Although microeconomic analysis often focuses on individual consumers and companies, governments also have a considerable affect on such studies. This is because governments influence the behavior of individuals and companies as well as other organizations, like nonprofits by formulating tax policy.

Elasticity is responsive to change and is measured in percentage change in quantity demanded over percentage change in the selling price of a good. This means that when the demand for a specific good or service is elastic in an economy, a decrease in price will encourage many consumers to buy the product, and thus the quantity demanded will increase. In health care, even though a person’s demand for health care is not responsive to price considerations when their life is in danger, patients are postponing elective care and are putting off going to see a physician until the last possible moment. This demand reducing behavior, coupled with a lower ability to pay, can impact the sales of medical device vendors and lower their profits.

Inelasticity of demand is the low responsiveness of the quantity demanded to changes in price for a good or service. If the demand for a good is inelastic, changes in price will cause little or no change in...

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