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%
