hen 368 lecture 7 the demand for medical care
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Health Economics !
Lecture 7 The Demand for Medical
Care
SPECIAL !
This week only Gall Blatter surgery
50% percent off
Derived Demand
Derived Demand
Getting health by buying medical care
Normal Market
Normal Market
Medical Market
Normal Market
Medical Market
Planned
Normal Market
Medical Market
Planned Yes
Normal Market
Medical Market
Planned Yes No
Normal Market
Medical Market
Planned Yes No
Know Price
Normal Market
Medical Market
Planned Yes No
Know Price Yes
Normal Market
Medical Market
Planned Yes No
Know Price Yes No
Normal Market
Medical Market
Planned Yes No
Know Price Yes No
Guarantee
Normal Market
Medical Market
Planned Yes No
Know Price Yes No
Guarantee Yes
Normal Market
Medical Market
Planned Yes No
Know Price Yes No
Guarantee Yes No
Normal Market
Medical Market
Planned Yes No
Know Price Yes No
Guarantee Yes No
Equal Information
Normal Market
Medical Market
Planned Yes No
Know Price Yes No
Guarantee Yes No
Equal Information Yes
Normal Market
Medical Market
Planned Yes No
Know Price Yes No
Guarantee Yes No
Equal Information Yes No
Health
Medical Costs
Large Gain
Diminishing Marginal UtilityHealth and Medical Costs
Small Gain
The Law of Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
The Law of Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
The Law of Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
The Law of Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
The Law of Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
The Law of Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
The Law of Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
The Law of Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
The Law of Demand
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Law of Demand !
When price falls quantity demand increases
!
When price increases quantity demanded falls.
Demand for Medical Care
Demand for Medical Care out-of-pocket price
income time costs
prices of substitutes and compliments tastes and preferences
physical and mental profile state of health quality of care
Out-of-Pocket Price
Out-of-Pocket PriceAfter insurance
Coinsurance Copayments Deductible
Income
IncomeHigher income tends to
demand more medical care
Time Costs
Time CostsTime to visit medical
provider and the opportunity costs
Prices of Substitutes and Compliments
Prices of Substitutes and Compliments
OR !
AND
Tastes and Preferences
Tastes and Preferences
Marital Status - less Education - ?
Lifestyle - risky
Physical and Mental Profile
Physical and Mental Profile
Gender - women more Race/Ethnicity
Age - older more
State of Health
State of Health
Sicker - More Unhealthy - More
Quality of Care
Quality of Care
Hard to measure nice office
!
perception is more important than reality
Market Demand !
Intensive Margin Do you buy more or less when
the price changes !
Extensive Margin Do more or fewer people buy
when the price changes
Elasticity !
A measure of how much one economic variable
responds to changes in
another economic variable
Elasticity
Percentage Change in Quantity Demanded Percentage Change in
Price
Price Elasticity of Demand
Price Elasticity of Demand
Price Elasticity of Demand
%%
Price Elasticity of Demand
%%
QD
Price Elasticity of Demand
%%
QD
P
Price Elasticity of Demand
%%
QD
P
Percentage Change in Quantity Demanded
Percentage Change in Price
Price Elasticity of Demand
1
ElasticInelastic
<1 >1
1. Calculate Elasticity 2. Take Absolute Value 3. Compare to benchmark of 1
What determines Price Elasticity of
Demand?
Close Substitutes Passage of Time
Luxuries vs. Necessities Definition of Market
Share of Budget
Close Substitutes
Close Substitutes
Close Substitutes
Elastic >1
Close Substitutes
Elastic >1
Close Substitutes
Elastic >1
Inelastic <1
Passage of Time
Passage of Time
More Time More Elastic
Luxuries vs. Necessities
Luxuries vs. Necessities
Elastic
Luxuries vs. Necessities
Elastic Inelastic
Share of the BudgetSmall Large
Share of the Budget
Inelastic
Small Large
Share of the Budget
ElasticInelastic
Small Large
Price Elasticity of Demand
% QD !
% P
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
%rQD %rP
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
%rQD %rP
(4-5)÷5
(6-3)÷3
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
%rQD %rP
(4-5)÷5
(6-3)÷3
-20%+100%
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
%rQD %rP
(4-5)÷5
(6-3)÷3
-20%+100%
.2
Close Substitutes Passage of Time
Luxuries vs. Necessities Definition of Market
Share of Budget
% QD !
% I
Income Elasticity of Demand !
Normal, Inferior, or Luxury?
Income Elasticity of Demand
0
NormalInferior<0 >1
1
Luxury0 to 1
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