Key concepts

Key concepts

 Demand

 Supply

 The market

 The market forces

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 Equilibrium
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 Demand
 Willingness & ability of potential buyers
(consumers) to purchase at a given price.

 In health sector, it refers to the willingness

of users to purchase a particular combination
of healthcare services at a given price (or
fee)

 Manifested by utilisation of services

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 Relationship between demand
and prices (e.g. of
healthcare)

The demand
curve

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 Relationship between demand
and prices

 Normally people are willing to

purchase more of a commodity (e.g.
health care) when the price falls, and
less when the price is increased.
(health care)

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 Relationship between demand
and prices
 What would you expect to utilization or
purchase of health care when, for
example, the user fee is reduced?
 The analysis holds when other factors don’t
apply

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 Factors that influence
demand (when price is
fixed)

Demand
shifters

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 Factors that influence
demand
 (WHEN THE PRICE IS FIXED)

 Prices of related goods

 Complements
 Substitutes
 Change in tastes
 New information (e.g. health education)
 Ageing

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 Factors that influence
demand (price is fixed)
 Population growth

 Time spent to get care or the

commodity
 Increases total cost (economic) cost

 Insurance (has cushioning effect)

26/08/09  Change in healthcare quality 9

 Supply
 The willingness of providers to sell a
given good or service at the given price

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 Relationship between
supply and price

The supply curve

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 Relationship between supply
and price
 Normally,

 The higher the price, the higher the supply,

and vice versa

 This also assumes that other factors are

held constant

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 Factors that influence
supply (Price is fixed)

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 Factors that influence supply
(when price is fixed)
 Improved technology
 Input prices  (wages, rent, interest
rates)
 Prices of production related goods
 Size industry (health facility)
 Acts of God (e.g. weather)
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 The market (private sector)
 Describes the relationship between
sellers & buyers of commodities
(rather than a physical location)
 The buyers & sellers have

independent countervailing forces

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 The market (private sector)

 The degree of willingness of consumers

to purchase at given price & the
willingness of the providers to supply at
the given price

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 The flow of commodities, resources and
money
HOUSEHOLDS
Consumption
Investment

Money Commodities Labour Money

FIRMS
Production

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 Market
 The amount of money that is exchanged
for a commodity or service is the price.

 Price does NOT represent the value of

the good or service

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 Market

 Price is influenced by the market forces

of supply and demand.

 However, sometimes government

intervenes to regulate markets
(regulation).

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 Market forces & equilibrium

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 Excess demand
 At lower prices
 Suppliers will be unwilling to sell

 Consumers (users) will demand more

 Hence we have a situation of excess

demand
 Many users who would otherwise
have been willing to pay will go un
supplied
 This will tend to push prices UP
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 Excess demand

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 Excess supply (surplus)
 At higher prices
 Consumers will demand less
 Providers have incentives to
produce more
 Hence supply is in excess

 Some goods or services will

remained unbought
 Prices will fall

 Providers will want to cut on

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production 23
 Excess supply (surplus)

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