Hen 368 lecture 7 the demand for medical care
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Transcript of Hen 368 lecture 7 the demand for medical care
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Health Economics
Lecture 7The Demand for Medical
Care
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SPECIALThis week only
Gall Blatter surgery50% percent off
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Derived Demand
Getting health by buying medical care
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NormalMarket
MedicalMarket
Planned Yes No
Know Price Yes No
Guarantee Yes No
Equal Information Yes No
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Health
Medical Costs
LargeGain
Diminishing Marginal UtilityHealth and Medical Costs
SmallGain
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The Law of Demand
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0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
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The Law of Demand
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10
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Price
Quantity
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Law of DemandWhen price falls
quantity demand increases
When price increasesquantity demanded falls.
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Demand for Medical Care out-of-pocket price
incometime costs
prices of substitutes and complimentstastes and preferences
physical and mental profilestate of healthquality of care
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Out-of-Pocket PriceAfter insurance
CoinsuranceCopaymentsDeductible
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IncomeHigher income tends to
demand more medical care
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Time CostsTime to visit medical
provider and the opportunity costs
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Prices of Substitutes and Compliments
OR
AND
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Tastes and Preferences
Marital Status - lessEducation - ?
Lifestyle - risky
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Physical and Mental Profile
Gender - women moreRace/Ethnicity
Age - older more
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State of Health
Sicker - MoreUnhealthy - More
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Quality of Care
Hard to measurenice office
perception is more important than reality
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Market DemandIntensive Margin
Do you buy more or less when the price changes
Extensive MarginDo more or fewer people buy
when the price changes
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ElasticityA measure of how muchone economic variable
respondsto changes in
another economic variable
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Elasticity
Percentage Change in Quantity DemandedPercentage Change in
Price
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Price Elasticity of Demand
%%
QD
P
Percentage Change in Quantity Demanded
Percentage Change in Price
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Price Elasticity of Demand
1
ElasticInelastic
<1 >1
1. Calculate Elasticity2. Take Absolute Value3. Compare to benchmark of 1
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What determinesPrice Elasticity of
Demand?
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Close Substitutes
Passage of Time
Luxuries vs. Necessities
Definition of Market
Share of Budget
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Close Substitutes
Elastic >1
Inelastic <1
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Passage of Time
More TimeMore Elastic
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Luxuries vs. Necessities
Elastic Inelastic
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Share of the Budget
ElasticInelastic
Small Large
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Price Elasticity of Demand
% QD
% P
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$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
%QD %P
(4-5)÷5
(6-3)÷3
-20%+100%
.2
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Close Substitutes
Passage of Time
Luxuries vs. Necessities
Definition of Market
Share of Budget
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% QD
% I
Income Elasticity of Demand
Normal, Inferior, or Luxury?
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Income Elasticity of Demand
0
NormalInferior<0 >1
1
Luxury0 to 1