Basic Economic Principles Affecting Health Care

Question 1

Define the basic economic concept of demand?

Answer 1

limited resources influence consumer demand

Question 2

Define the relationship outlined in the law of demand

Answer 2

as price decreases, there is an increase in quantity demanded
as price increases, their is a decrease in quantity demanded

Question 3

Contrast the change in quantity demanded and change in demand

Answer 3

the change in quantity demanded assumes the price of a good or service CHANGES while the change in demand assumes price of good or services are HELD CONSTANT

Question 4

What are the factors that lead to a change in demand for a product or service

Answer 4

1. prices of related goods
2. monetary income of consumers
3. number of consumers in the market
4. attitudes, tastes, and preferences of consumers
5. consumer expectations with respect to future prices and income

Question 5

Define the basic economic concept of elasticity of demand

Answer 5

the shift in demand for an item or service when a change occurs in one of the variables that buyers consider as part of their purchase equations
*assumes price of good or service CHANGES

Question 6

What are the factors that impact the elasticity of demand for a product or service

Answer 6

1. availability of substitutes(more substitutes = more elastic)
   2.price relative to income(more expensive = more elastic)
2. Necessity v. luxury (luxury = more elastic)
3. short run v. long run (tradeoff between time and money; short term = more inelastic, long run = more elastic)

Question 7

Define the basic economic concept of supply

Answer 7

increase in price of goods or services results in an increase in their supply
*looking at supplier perspective

Question 8

What is the relationship outlined in the law of supply

Answer 8

increase in price results an increase in quantity supplied
decrease in price results in a decrease in quantity supplied

Question 9

What are the factors that lead to a change in supply for a product or service

Answer 9

1. techniques of production
2. number of sellers in market
3. resource costs
4. prices for related goods
5. seller expectations with respect to future prices and income

Question 10

What are the various types of market structures seen in Health Care

Answer 10

Supply-side(sellers)
-monopoly: one seller(i.e. brand name drugs)
-oligopoly: multiple sellers of similar products(antihistamines)

Demand-side(buyers)
-monopsony: one buyer(government purchasing health care)
-oligopsony: many sellers, few buyers (insurers/PBMs)

Question 11

What are the similarities between the different types of market structures

Answer 11

they are similar in that there is a monopolistic competition in both the demand-side and supply-side

Question 12

What are the differences between the different types of market structures

Answer 12

there is a buyer related side(demand-side)
there is a seller related side (supply-side)

Question 13

How is the economic of health care different from the economics of other industries

Answer 13

1. numbers of buyers and sellers
2. entry and exit
3. variation in products, services and quality
4. full and free information
5. inelastic demand
6. universal demand
7. unpredictability of illness
8. health care as a right
9. supplier-induced demand
10. third-party insurance and patient-induced demand

Question 14

How could the economic performance of health care system be improved

Answer 14

1. making of patients aware of prices and costs
2. provider feedback about performance
3. reimbursement incentives/penalties
4. balancing cost and value

Question 15

How is economics involved in issues facing the health care system

Answer 15

-growing demand for health services
-growing cost of health care services
-prices and payment for pharmaceuticals
-competition and viability of health care organizations
-health care professional jobs and salaries
-patient behavior

Question 16

What is an example of how we can make patients aware of prices and costs

Answer 16

itemized receipts
vary patient cost-sharing

Question 17

In what way can reimbursement incentives and/or penalties improve the health care system

Answer 17

move towards prospective payments, transfers risk to providers

medicare bonus payments and penalties

Question 18

What are some reasons that people say the healthcare system can not be changed

Answer 18

-strategies used to reduce costs in other industries don’t work in healthcare(i.e. increase supply and increase competition)
-too much concentration of power(i.e. need for increase government role, regulate health care as a public utility, use a similar approach used in other countries)

Question 19

Describe the elasticity of demand

Answer 19

demand curve always slopes down because as price increases, quantity of demand increases