Assignment 3
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Assignment3withfeedback.docxRunning Head: HEALTH 1
HEALTH 2
Health Care
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#1 The demand or willingness to pay for medical care depends on the marginal productivity of medical care on health and the marginal utility associated with an additional unit of health. Since marginal productivity declines with additional medical care and marginal utility declines with respect to additional units of health, the willingness to pay falls with greater units of medical care.
3. a. Average real income in the community increases.
The demand curve would move to the right because the community would be able to buy more of the normal goods, health being one of them.
b. In an attempt to cut costs, the largest employer in the area increases the coinsurance rate for employee health care coverage from 10 percent to 20 percent.
The demand curve for inpatient hospital services rotates downward pivoting off the point where the curve crosses the horizontal axis. This is because the increase in the coinsurance rate causes the out-of-pocket costs of inpatient hospital services to increase.
c. The hospital relocates from the center of the city, where a majority of the people live, to a suburb.
A move of the hospital out of the major metropolis would result in an opposite shift in the curve from part a. The curve would move to the left because the cost of the inpatient services would go up with the additional travel costs (assuming the hospital did not offset that cost). So community members would not have the ability to buy as many services with the same dollar amount.
d. A number of physicians in the area join together and open up a discount-price walk-in clinic; the price elasticity of demand between physician services and inpatient hospital services is -0.50.
The curve would shift to the left . This is because the same units of price will now get you more services. The relationship between physician services and inpatient hospital services for this question’s scenario are inverse. As physician services are utilized more, inpatient hospital services are utilized less, they are substitutes in consumption.
4. The demand curve for medical services by the elderly rotates upward pivoting off the point where the curve crosses the horizontal axis. The more inelastic curve reflects the fact that the elderly have more complete medical insurance coverage as the out-of-pocket cost of medical care approaches zero.
7b) Physician services tend to be relatively price inelastic. If this holds true, the physician in this example will have an increase in revenues.
9a The own-price elasticity of demand is a function that compares the quantity demanded change to the change of price. b) Also, time allowed to research the options about a decision and availability of alternative substitutes.
10)
a. Average travel time to the hospital diminishes by 5 percent due to overall improvements in the public transportation system.
Hospital services would increase by 1.85%. 0.37*5=1.85
b. The price of nursing home care decreases by 10 percent.
Hospital services would decrease by 1%. 0.1*10=1
c. Average real income decreases by 10 percent.
Hospital services would decrease by 4.5%. 0.45*10=4.5
d. The hospital is forced to increase its price for services by 2 percent.
Hospital services would decrease by 0.5%. 2*0.25=0.5
Questions:
1. In your own words, use utility analysis and production theory to explain why the demand curve for medical care is downward sloping.
The demand for medical care is a very crucial aspect that is on constant demand since it is a commodity as well as a service that is needed in various levels of an individual's well-being. However, medical care is not a cheap commodity. Thus, this is a significant result of the downward sloping demand cure of medical care. The demand for medical care increases continuously as the price of the services and commodities reduces, thus, the input has to be affordable to ensure that the market is constant. Therefore, this can easily be understood through the utility analysis which talks of the quantitative value generated by an intervention. This goes to say that the demand curve is sloping downwards because the intervention or work/effort made is generally reduced in value to ensure that patients can attain full medical services more affordable and at their price range. I believe the medical care curve is downward slopping also because of the qualifications and efficiency of the medical practitioners. Since they are their knowledge and understanding is the primary input, the financial price tag put on the services they offer tends to rise immensely which leads to a low turnout of patients.
2. After reading the chapter on demand theory, a classmate turns to you and says, "I'm rather confused. According to economic theory, people demand a good or service because it yields utility. This does not apply to medical services. Just last week I went to the dentist and had a root canal, and you can't tell me I received any utility or satisfaction from that!" Explain to your classmate how utility analysis can be used to explain why he went to the dentist.
Well, it is possible to assume so considering you paid someone to have your tooth removed. None the less there is an aspect to your situation that may beg to differ to that notion, first and foremost, you need to understand that utility analysis is the estimated financial value that is generated from attaining a good or a service of any kind. It might not appear to make sense at the moment in light of the root canal you received, but, you attained two things. First, you accomplished satisfaction through the eradication of the constant and persistent pain you could have been enduring if it were not for the root canal. You also went to the dentist to attain financial indemnification since it was the best move to make since you might have been at a loose if you opted not to. This means that going to the dentist reduced the chances of wasting money purchasing painkillers and secondary solutions to the dilemma you were facing. You should also realize that one main utility that you also attained is comfort which now allows you to take part in other money generating activities, least of which you might not have been able to do if you failed to go to the dentist. Therefore, I firmly believe you received both utility and satisfaction from the visit to your dentist.
3. Use a graph to illustrate how the following changes would affect the demand curve for inpatient services at a hospital in a large city. a. Average real income in the community increases. b. In an attempt to cut costs, the largest employer in the area increases the coinsurance rate for employee health care coverage from 10 percent to 20 percent. c. The hospital relocates from the center of the city, where a majority of the people live, to a suburb. d. A number of physicians in the area join together and open up a discount-price walk-in clinic; the price elasticity of demand between physician services and inpatient hospital services is À0.50.
4. Many elderly people have purchased Medigap insurance policies to cover a growing Medicare copayment. These policies cover some or all of the medical costs not covered by Medicare. Use economic theory to explain how these policies likely influence the demand for health care by elderly people.
Many elderly persons are prone to a series of ailments, and this can indeed prove to be a financial strain. Thus, this is one of the main and leading factors of why they turn to obtain the Medigap insurance policies which only covers up the loopholes left out by the correlating Medicare policy. As it is well acknowledged, medical care and services are not as cheap as it might seem. Therefore, people require premium like insurance policies that will enable them to acquire medical care in all genres while still maintaining their financial welfare. As a result of these various policies, the demand for health care by the elderly will strongly be influenced since many more people will now be able to attain medical services at the comfort of their financial suit. With regards to economic theory, more financial growth is achieved when a commodity is high on demand and being consumed as well. Thus, economic theory does support the increased need for medical care and the availability of policies that can make this possible since it is more of a financial gain. Therefore, if a demand statistical representation is developed for the elderly, it will be clear to see that the demand has grown rampantly as compared to the market seen in other age sets.
5. If you are covered by a private or a public insurance plan, obtain a pamphlet outlining the benefits provided and the cost of the program. Are there any copayments or deductibles? If so, use economic theory to explain how they may influence your demand for medical care.
The insurance policy does have a copayments policy that needs to happen to be fixed and independent of any medical bill or rates. It is evident that this plan will make it possible to attain any form of medial cover needed at any season and any level without the fear of financial constraints. Concerning economic theory, this mode of copayment in the insurance policy being offered will make it more than suitable to embrace and explore more of the medical care services and goods. Thus, this insurance cover does work for hand in hand in making sure that medical care is consumed at a high rate and it is bringing in financial gain. Not only this but as an individual, I will be able to demand more medical care at any given moment since there is assured coverage at all times. As a result of this, the demand for medical care will improve and be the first want since it will appear somewhat affordable and readily available thanks to the insurance plan. It is also made possible to increase the demand for medical care since the copayments are fixed which makes it easier for any individual to plan themselves before any payment.
6. In your own words, explain what a fuzzy demand curve is. Why does it exist? What are its implications? 15 BUS508 – Economics of Health and Medical Care Course Syllabus
Demand is the basic need and wants that is available when an individual wants medical care. Many at times, these or such choices of demand can and are easily influenced by what the medical caregiver/physician advice the patient to do. Thus, this causes uncertainty of the demand levels since it is not a direct demand from the consumer. This leads to a fuzzy demand curve as they rely on what they are told and at times this can quickly put off the demand for a commodity, and it can immediately impact the demand of the merchandise as well. This form of demand curve exists due to the lack of certainty from the one seeking medical care after receiving medical guidance which may or may not work well with their financial plan. Thus, the fuzzy demand curve is an approximation of the relative demand and price that will be expected in a period. This demand curve has the actual demand, and the estimated up and downshifts. Thus, the fuzzy behavior is scheduled between the two demand curves, the upward movement, and the downward movement. Such a curve has a negative implication on medical care as it can easily be manipulated by medical practitioners since many patients do not know much about the medical care they receive, or most of the medical terms that are labeled in the receipts and pointed out by the physicians.
7. In reaction to higher input costs, a physician decides to increase the average price of a visit by 5 percent. Will total revenues increase or decrease as a result of this action? Use the concept of price elasticity to substantiate your answer.
This sudden change will indeed have a positive impact on the total revenue level as a whole. Therefore, as a result of the action taken by the physician to increase the average price per visit, the revenue that will be earned will rise and make it possible for the physician or hospital to attain more returns from the services and goods they offer. From the concept of price elasticity, many or rather, most medical facilities prefer to maintain the income elasticity of demand higher as this supports the output the facilities will offer. This will mean that the demand for better services and services, in general, will increase as well as making it possible for medical practitioners to take acute care and observation over their patients. Hence, an increase in revenue will be evident since the services will improve and the demand for the service from the physician will increase as well thanks to the quantity and quality offered in return.
8. You have just been put in charge of estimating the demand for hospital services in a major U.S. city. What economic and noneconomic variables would you include in your analysis? Justify why each variable should be included in the study, and explain how a change in each variable would likely affect the overall demand for hospital services.
The demand for health care amenities and services is strongly reliant on various economic and noneconomic factors that play a significant role in rising or dropping the demand. Thus, I believe that there are some significant economic and noneconomic factors that must be pointed out in the analysis as they will be the main pillars of the whole review. Below is a break-down of some of the significant economic and noneconomic elements that will be part of the study:
a) Hospital Funding
Many medical facilities rely on considerable funding support as their major financial backbone, thus, seeing a reduction in this will directly impact the service offered which will lead to either expensive bills on patients to substitute the lack of funding. This can easily trigger a slow in medical care demand.
b) Insurance policies
Many insurance policies make it possible for many people to access medical care at ease. Therefore, in the analysis, the main focus will be turned into determining what exactly causes these services/policies to improve medical demand in return having a positive impact on financial growth (Xueni&Hengpeng, 2018).
c) Technology
Technology is a noneconomic factor that has its weaves deep in the medical care unit as it is a significant and leading factor on and in offering medical care. Therefore, this element will make it possible to understand the impact technology has on medical care. Technology being an asset to a medical facility makes it possible for an institution to be seen to have better therapeutic output as compared to an institution that lacks technological prowess.
d) Education
Education is a noneconomic factor that has substantial influence over the demand of medical care. The level of knowledge or experience on and in medical situations such as having a medical background tends to make it easier for someone to demand medical care as they know it might help them. On the other side, the lack of medical information makes it easy for many to overlook the importance of medical care.
9. Define own-price elasticity of demand, and explain how it is related to the demand curve. Provide four reasons why the demand for medical services is likely to be inelastic concerning its price.
Own-price elasticity is the state in which an individual makes a choice based on the value or the price of the medical care they aim at receiving. Thus, this makes them group themselves in a particular financial gap which is known as the own-price range where they would way themselves. However, many at times this aspect does not interfere with the demand for medical care as various variables are In play when it comes to medical care. Many at times, the demand for medical services is likely to be inelastic concerning its price as many patients only end up paying a small portion of the whole bill as other entities, be it insurance policies or Medicare covers, end up catering for the more significant part. At times this frame also fails to work since the medical care needed might be urgent and will require immediate attention as this is a policy in all medical facilities.
10. You are employed as an economic consultant to the regional planning office of a large metropolitan area, and your task is to estimate the demand for hospital services in the area. Your estimates indicate that the own-price elasticity of demand equals À0.25, the income elasticity of demand equals 0.45, the cross-price elasticity of demand for hospital services concerning the price of nursing home services equals À0.1, and the flexibility of travel time equals −0.37. Use this information to project the impact of the following changes on demand for hospital services.
a. Average travel time to the hospital diminishes by 5 percent due to overall improvements in the public transportation system.
This would make it more efficient for the hospital as it will have more ability to combat emergencies as well as deploying ambulance services that will reach the patients on time. Therefore, this change will have a positive impact on the demand curve as more people will be willing to travel to access medical care since they will spend less time on the roads.
b. The price of nursing home care decreases by 10 percent.
Nursing home care is one of the safest bets for many patients who need round the clock type of medical attendance and attention. Therefore, this price decrease means that many more patients will be able to access home nursing care at friendly prices without much of a struggle. Hence a positive impact on the demand curve.
c. Average real income decreases by 10 percent.
Real income determines the ability of people to access and attain medical care, covers, and insurance policies. Therefore, having the rate decreasing means that people will not have an easy time catering to the medical needs as their finances will not easily allow them to relocate any funds. Considering the income elasticity of demand equals 0.45, the reduced revenue/income will make it difficult for anyone to priorities their medical care demand.
d. The hospital is forced to increase its price for services by 2 percent.
Despite this increase taking place, it will raise the demand level of the medical services as it will build the notion of better medical facilities and more demand as well as quantity will be required in return. Therefore, this will only raise the probability of the demand ratio, (Fertig, Carlin, Ode & Long, 2018).
References
Fertig, A. R., Carlin, C. S., Ode, S., & Long, S. K. (2018). Evidence of pent-up demand for care
after Medicaid expansion. Medical Care Research and Review, 75(4), 516-524.
Xueni, C., & Hengpeng, Z. (2018). The Relationship Research between Medical Insurance and
Medical Care Demand——The Policy Effect of Adjustments of Medical Insurance
Treatment Through Differentiating Expense Section. Price: Theory & Practice, 2, 007.
Deamand Shift
Real Income Increase 8 6 4 2 0 Care Coverage Increase 4 2 0 Hospital Relocates 6 4 2 0 Discount-price-walk-in-clininc 10 8 6 4 2 0Demand
Price
