Questions and Answers
CollegeStudent R
M4EconomicEnvironmentofhealthcare5.pptEconomics: The Dismal Science
- Economics is the science of allocating scarce resources among unlimited needs and wants.
- Study objectives:
Understand economic systems and how they work
Appreciate complexity of political, government, and economic systems and their affect on management of health care organizations.
Be better able to address healthcare economic issues knowing key terms and concepts
Healthcare Economic Issues
- Universal healthcare: What is it? Who will get what? How will it be financed? Who will provide it?
- Is there and how should we address shortages of physicians and other professionals?
- Why are U.S. health care costs rising but indicators of care are not?
- How does employer paid healthcare and insurance affect consumption of services and cost?
- How should human organs be allocated? Should people be able to sell their organs before they die?
Economic Systems
- Planned Economy
- Individual or group makes value based decisions to allocate resources
- Good at reflecting values, but struggles to be efficient
- Market Economy
- People “vote” with their dollars (currency) to allocate resources
- Efficient, but political values are not necessarily reflected
- Mixed Economy
- Partially planned and partial market
Philosophical Approaches to understanding an economic environment: the “isms”
- Communism
- All means of production owned by the state= government=people
- Socialism
- Major means of production owned by state= government=people
- Capitalism
- Means of production owned privately, free enterprise, free market, private enterprise
More approaches
- Macroeconomics: the study of national, regional, or market activity
- Microeconomics: the study of behavior of the firm
- Compare outcomes or efficiency of two theories, or outcomes and efficiency of two realities, but should not compare a theory to a reality
Dynamics of Supply and Demand Theory
If demand increases, and supply constant, price increases.
If demand falls, and supply constant, price decreases.
If demand is constant and supply increases, price falls.
If demand constant, supply falls, price increases.
Understanding the Market Economy
- Interaction of supply and demand determines price of service or commodity
- Demand is quantity demanded by consumers at a certain price
- Supply is the quantity suppliers are willing to supply at a certain price
- The dynamics of supply and demand will result in an equilibrium price
Price Equilibrium Theory
- After initial change in supply or demand, and price responds, then the new price will increase supply or demand, causing price to change again. This theoretically results in a dynamic process where price fluctuates to keep supply and demand in equilibrium.
Elasticity & Inelasticity of Demand
- Elastic demand: A small change in price results in a large change in quantity demanded. Usually accompanied by existence of many substitutes for product or service demanded.
- Inelastic Demand: A substantial change in price results in little change in quantity demanded. Usually accompanied by existence of few if any substitutes for quantity demanded.
Price Theory & Pure Competition
Market theory assumes Pure Competition which requires that:
- No one seller or consumer can influence price more than another; must have many of both
- Entry costs into the market are low
- No oligopolies or monopolies
- All parties act economically rational
Aberrations in the Market System
- Monopoly is market with single seller or buyer
- Oligopoly is market with few sellers or buyers
If there are high entry or start up costs to get into the market or if a single or few sellers or buyers can influence price, then market is no longer free, but has aberrations so supply and demand will not respond as market theory predicts.
Role of Government in Market Economy
- Regulation: Ensure fair competition to compensate for “unfair” competition or rule violation
- Impose Values or Social Justice: Ensure politically determined policies are implemented
- Act as seller or buyer of services or products to and from private sector
Is U.S. Healthcare system complex and managing in it difficult?
- Care provided by a mix of government, not for profit, and government regulated private for profit organizations
- Regulations designed to address a problem may have unintended consequences
- Regulations meant to address issues reflect political philosophies of politicians in power at the time
- Do private physicians have a conflict of interest as provider and induce demand?
- Has employer paid health insurance and insurance in general removed consumer from making informed decisions or caused more demand for service than needed?
