Health Markets Basics Flashcards
Positive analysis
“is” statement, can be proven or disproven (not subjective)
Normative analysis
“should be” statement, how some people think something should be (subjective)
When do you use positive and normative analysis?
Use positive statements to make normative analysis
Rationality
individual is trying to maximize their wellbeing/utility subject tot he fact that they have income restraints and the prices that they face in the market
Constrained optimization
consumers maximizing their utility and firms minimizing costs
Ceteris paribus
in order to focus on effects of one change, everything else must be held constant
Scarcity
there are not enough resources to provide all of the goods/services desired by a society
Opportunity cost
if resources are used for one opportunity, they are forgone for another opportunity
Market
the collection of buyers and sellers, that, through their potential interactions, determine the price of a product
Relationship between price and demand
inverse relationship (price increases, demand decreases)
What factors influence consumer demand?
the price of related goods and services, the number and type of people who demand the good/service, consumer income, consumer preferences, consumer expectations about future prices
Elasticity
measures the responsiveness of quantity demanded to changes in price
Elasticity equation
percentage change in Q/percentage change in P
Elastic
very responsive to changes in prices
Perfectly elastic graph
horizontal line
Inelastic
not responsive to changes in price, quantity demanded would fall less than 1% if price increased by 1%
Perfectly inelastic graph
vertical line
Income elasticity
measures the responsiveness of demand to changes in consumer incomes
Income elasticity equation
percentage change in Q/percentage change in income
Cross price elasticity
measures the responsiveness of demand to changes in prices of another good
Cross price elasticity equation
percentage change in Q of X/percentage change in price of another good (P of Y)
Supply
willingness of firms to sell at different prices and different quantities
Factors that affect market supply
number of firms in the market, changes in tech, changes in input prices, prices of related goods/service, producer expectations of the future
Assumptions used in model markets
perfect and free information, price taking, private goods, lots of buyers and sellers, private decisions, free entry and exit, homogenous product
Perfect and free information
all market participants have free and immediate access to accurate information about prices and quality
Price taking
no market power, prices are taken as given
Private decisions
choices by individuals do not affect the welfare of others (no externalities)
Private goods
no public goods, all goods are rival and excludable
Market clear price
where supply and demand are equal
Consumer surplus
the difference between the maximum value the consumer is willing to pay and the amount they actually pay in the market
Producer surplus
difference between the market price and the price the seller is willing to sell
Social welfare
combined areas of consumer and producer surplus
Market equilibrium
market clearing price and quantity
Demand curve
willingness to pay
Supply curve
willingness to sell
Market deadweight loss
rather than transferring the surplus between consumers and producers, the surplus is lost
Market disequilibrium
NOT market failure, trading off efficiency for greater equity
Examples of market disequilibrium
price restrictions, rent control
Market failure
when information asymmetry, market power, externalities, or public goods occur
What occurs when there is market failure
there is inefficiency that is created
Universal healthcare
all people have access to quality healthcare services when and where needed without financial hardship, DOES NOT mean you have completely free access to all healthcare
5 ethical values
universal access, equitable access, cost/affordable access, quality, choice
