Professional Documents
Culture Documents
D
Quantity of Physician
Services
Relationship between medical care and
health improvement is not exact.
Uncertainty in what type of care needed to
get you better
Consumer does not have medical
knowledge to know what they need to get
better so depends on physician.
Physicians, not consumers choose medical
services and this affects the quantity of care
you may demand.
Difficult to accurately delineate
(demarcate bounds of) the relationship
between price and quantity demanded
of medical care.
Prices differ and amount of care for a given
prices differs for difference people.
Hard to control and measure quality.
Demand for Health Services
Fuzzy Demand Curve
Price of 1. For a given price may observe variation in
quantity of medical services.
Physician
2. For a given quantity of services, may see
Services
various prices.
%Qhsd
Own Price Elasticity: %Phs
Price HS Perfectly Inelastic (E=0);
Quantity HS
Demand for Health Care Empirical Estimates
Estimates tend to be between -0.1 and -0.7 for Primary Care and Hospital
Care.
So a 10% increase in price of primary care leads to a 1 to 7 percent
decrease in quantity demanded – inelastic.
This is why some argue that you should increase the price. Will not reduce
health care so much, and hopefully people will reduce unnecessary visits.
In developing countries increasing the price has been meet with a lot of
opposition – not a lot of unneeded visits.
Demand for Health Services Effect of Income
Price of Physician
Services
Increase in income demand
more (health is a normal
good):
Shifts the curve out away from
the origin and would demand
more health care.
D2
D1
Quantity of Physician Services
Q1 Q2
Demand for Health Services Effect of Health Insurance
Consumer pays
without insurance
50 A
.5*50
60
Environment
Income
Time
And to quote …
Resource choices:
Health care inputs vs. other consumption
subject to budget constraint
Optimal choice of investment
Marginal cost (of investing in H) = Marginal benefits
Marginal cost = r + ,
where
r = rate of interest on other investments
= rate of depreciation of health
i.e. the opportunity cost
r+ð X
MEC
H* Health Stock
r+ð
MEC
Health Stock
H1 H*
r+ð
MEC2
MEC1
Health Stock
H1 H2
Changes in Education
MEC Education increases the efficiency of non-
market production – it increases the MP of
health inputs thereby raising the optimal
health stock. Also better educated may
enjoy exercise etc. more and may be more
able to follow treatments
r+ð
MEC2
MEC1
H1 H2 Health Capital
Implications
Raise education amongst the poorly educated
Reduce price of health care, especially to the
poor
Increase wages of the low paid
Use policies to affect depreciation
Criticisms of the model
Assumes health care is a constant life time
investment
It ignores insurance markets
Assumes perfect information on the part of
consumers about the MEC of health care, interest
rates, depreciation, etc. – for now and the future.
It is deterministic including the choice of when to die!
Summary
Consumers want health not health care per se
Consumers produce health
Health does not depreciate instantly
Demand for health has pure consumption and pure
investment aspects
The cost of holding health is the opportunity costs of
capital plus the depreciation rate
The MEC curve is downward sloping due to MR
Rewards of being healthy are greater for high income
Health can be generated at less cost by educated
Questions