Module 2 Flashcards
Conditions for perfectly functioning health market
Certainty, no externalities, perfect information, no barriers for entry, consumer sovereignty
Certainty
For sure if you have health or not. No probability
Externality
Positive - Benefit that is experienced by someone that is not involved in the buying or selling of the good
Negative - costs that are incurred by people other than the buyer and seller of a good. The most common example is pollution.
Perfect Information
If consumers had perfect information about health care, they would be aware of their own health state, treatment options available to improve their health, and the prices charged by various providers.
No barrier for entry
very many sellers, so that no one seller is big enough to have any power at all over the market price.
Consumer Sovereignty
the idea that each person decides what to buy, and how much to pay for it.
Sources of Market Failure in HC
Uncertainty, externalities, asymmetric information, barriers to entry, no consumer sovereignty
How Uncertainty results in market failure
- Cannot plan health care
spending - Some cannot afford health care
when needed
Result:
Demand slope shifted to left and Too little health care is used
How Externalities result in market failure
- Positive Externalities
- Market equilibrium excludes
some demand
Result:
Demand slope shifted to left and Too little health care is used
How Asymmetric Information results in market failure
Supplier Induced Demand
Result:
Demand slope shifted to the right and Too much health care is used
How Barrier to Entry results in market failure
Constrains Supply
- Physician Licensure
- Patents
- High cost of a new hospital
Result:
Supply slope shifted up and Too little healthcare is supplied
How no consumer sovereignty impacts market
Stems from: Uncertainty & Asymmetric Information
- Willingness to Pay
- Supplier-Induced-Demand
Result:
Demand shift slipped right twice and and Too much healthcare is used
