DIPLOMA OF HEALTHCARE

MANAGEMENT

DHM 2133
HEALTH ECONOMICS

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 DHM 2133
Lecture by: LALITA
ANBARASEN

CHAPTER 5: SUPPLYING
HEALTH CARE
Supply

Supply is defined as the quantity of a good or service that firms will offer for sale at each
possible price. The basic determinants of supply are:

1. Resource prices – the price used in the production of the good or service. This determines
the price of the goods. If the price of production becomes higher it may reduce the supply of
such goods.

2. Technique of production – With improvement in technology some goods become cheaper to

produce and thus improve the supply of such goods.

3. Taxes and subsidies – Increase in sales or service tax will increase cost of good or service.
Government subsidy on drugs can increase supply of drugs.
4. Prices of other goods – In manufacturing firms, increase in price of a particular product may
make the firm shift to production of similar product of lesser price and through this increase
supply

5. Price expectations – Expectation of the future price of a product can affect the producers
current willingness to supply that product

6. Number of sellers in the market – Other things being equal the more the number of people or
firms involved in the supply of a product or service the more the market supply. Increase in the
number of firms producing anti-retroviral drugs (ARV) result in increase in the supply of the drug
in the market.

7. Demand and supply – For an equilibrium price, the quantity offered and the quantity
demanded are the same. As supply goes up and demand goes down, the price is likely to go
down.
FACTORS THAT AFFECTS SUPPLY

 Technological change
 Input prices
 Prices of production-related goods
 Size of the industry
 Weather
1.Technological change. As technology improves for producing a healthcare product, the goods
become cheaper to produce. Certainly, technological changes that make products more costly
without improving quality are ignored. As the product becomes cheaper to produce,
suppliers are willing to offer more for sale at a given price.

2. Input prices. If the wages of physicians were to rise, this increase in an input cost would result
in suppliers’ willingness to offer as much for sale at the original price.

3. Prices of production-related goods. The price of a good related to production, such as a rise in
the price of radiology services, also would be relevant. Because physicians can use radiology for
diagnosis as well as treatment.

4. Size of the industry- As more firms enter the market, the supply of the product will be greater.

5. Weather - For a number of products, acts of God such as weather will tend to affect
production. The direction of the effect is obvious: good weather increases supply
Economists often talk of output being produced using a production function that uses
labor, capital, and intermediate inputs. A production function identifies how various inputs
can be combined and transformed into a final output. What is the production function of
a hospital?

•The labor in a hospital includes doctors, surgeons, orderlies, technicians, nurses,

administrative staff, janitors, and many others.

•The hospital buildings are part of the hospital’s capital stock. In addition, hospitals
contain an immense quantity of other capital goods, such as hospital beds and
diagnostic tools—everything from stethoscopes to x-ray machines.

•Intermediate inputs in a hospital include dressings for wounds, and pharmaceutical

products, such as anesthetics used for operations.
Thank you