Beruflich Dokumente
Kultur Dokumente
Health Care
Demand and
Supply
1
On completion of this unit, students will be able to:
Define what is demand
Describe the Determinants factors of Demand
Explain the Equilibrium of supply & demand
Identify Determinants of Demand Elasticity
Explain Price Elasticity of Demand
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Demand
Demand describes the behavior of consumers. It does
not mean the desire to obtain.
In economics the hungry man who can not pay for
food has no demand for it. He has simply want for
food!!
An individual’s demand for a good is the various
quantities of it and consumer is willing and able to buy
at each specific price.
Demand = Need + ability and willingness to pay for a
commodity.
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Factors influencing consumer demand
The price of the good
The price of substitutes
The price of the complements of the good
Change in income of consumer
Change in choice of consumer. Likes and dislikes in
consumption.
Consumer expectation about future:
Change in future price of goods
Change in future income
Population Change
As the number of consumers in a market changes the
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Shifts in Demand
Substitutes
Other goods which satisfy the same wants, or provide
same characteristics. Goods that can be consumed in
place of one another. E.g.: Private and public hospitals,
coffee and tea,Pepsi and Coke .
Two goods are substitutes when a change in the price
of one causes a shift in demand for the other in the
same direction as the price change.
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Shifts in Demand…
Complements
Goods that are related in such a way that an increase in
the price of one leads to a decrease in the demand for
the other. Two or more goods which are consumed
together. E.g. sugar and milk, Car and Engine, etc.
Two goods are complements when a change in the
price of one causes an opposite shift in the demand
curve for the other.
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Normal and Inferior Goods
Normal Goods
Goods for which demand rises as income rises, most
goods are normal goods
Increase when income of consumers increase
Falls when income of consumer decreases
Eg LCD and plasma television, cars, branded closes,
expensive house YED>0
LUXURY GOODS –increased income leads to bigger
% increase in demand eg spare parts, cars
YED> 1
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Inferior Goods
Describes a Goods for which demand falls as people
income rises
EG. Consumption of breads or cereals since the income of
the consumer increase move to more nutritious foods
travel by public transport , hematology tests
Cheap substitutes (supermarket coffee)
YED<0
as the income of consumer increases demand for
normal goods will increase and demand for inferior
goods decrease and vice versa
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Law of demand
“Lower the price, greater the quantity demanded, keeping
the other factors constant”. This inverse relationship
between price and quantity demanded is known as law of
demand
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Demand Schedule
A table that shows the quantity demanded of goods or
service at different price.
The relationship between price and quantity bought is called
demand schedule.
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Demand Curve
Price
P2
P1
Q2 Q1 Quantity
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Demand …
Factors That Cause an Increase (rightward or upward
shift) in Demand;
1. A decrease in the price of complements to the
good or service.
2. An increase in the price of substitutes for the good
or service.
3. An increase in income (for a normal good).
4. An increased preference by demanders for the
good or service.
5. An increase in the population of potential buyers.
6. An expectation of higher prices in the future.
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Need versus demand…
Health plans that focus on need and ignore demand
will face under- or over-utilization of service capacity
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Demand for health care
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Demand for health care
Demand is based on the individual and community
expectations.
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Need, Demand and Utilization of Health
Services
Need in medical care defines as the amount of
medical care that medical experts believe a person
should have to remain or become as healthy as
possible
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Types of Need
Normative need
Normative needs Identified according to a norm(set of
standards)set by experts.
are those services determined by experts to be
essential for a specific need or for a specific
population group.
E.g. pre natal care, immunization, management of
hypertension, diabetes, screening for breast cancer and
prostate cancer etc.
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Types of Need…
Felt need
• need which people or patient feels / need from
perspective of the people who live it
• Felt need is the subjective view of the patient or
community, which may or may not be based on actual
physiologic needs
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Types of Need …
Expressed need
when people put what they want into action
Expressed need is a felt need that is acted on, such as
visiting a clinic or general practitioner.
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Types of Need …
E.g. A service is free, but not readily accessible due to
obstacles such as distance, language cultural barriers or it
may due to difficulty in arranging an appointment, long
waiting period ,cost of travel etc
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Types of Need …
Comparative need
• Comparative need is a term that relates needs of similar
population groups, as in two adjacent regions with same
age/sex/ethnic mix and socio-economic status
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Elasticity of demand
Demand elasticity: is a measure of how much buyers
respond to changes price, income, and other things.
Elasticity provides a way of measuring how sensitive
demand or supply is to factors such as a change in price.
A change in any of the demand will cause a change in
quantity purchased of a good/ time period.
Elasticity of demand forms part of demand analysis and is
useful in cases where demand curve analysis fails to
provide reliable results.
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Elasticity of demand
The coefficient of elasticity of demand is the % change
in the dependent variable [quantity demanded] divided
by the % change in the independent variable [demand
determinant].
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Elasticity of demand …
Price elasticity of demand is the percentage change in
the quantity demanded relative to a percentage change in
its own price.
Price elasticity= % change in quantity demand
% change in price
Q P Q P
ED
Q P P Q
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Using Price Elasticity of Demand
Elasticity is a pure ratio independent of units.
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Price Elasticity of Demand (ED)
A numerical example
Quantity Q2-Q1 Price P2-P1 ED
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Ranges of Elasticity
Inelastic Demand
Percentage change in price is greater than percentage
change in quantity demand.
Price elasticity of demand is less than one.
Large P-change, small Q-demanded change.
Elastic Demand
Percentage change in quantity demand is greater than
percentage change in price.
Price elasticity of demand is greater than one.
Small P-change, large Q-demanded change
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Price Elasticity of Demand …
Classifications of Price Elasticity of Demand:
Inelastic demand ( |ED| < 1 ): a change in price brings
about a relatively smaller change in quantity demanded
(ex. gasoline).
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Elasticity of demand…
2.Income elasticity demand
• The income elasticity of demand is the % change in demand
for a product divided by the % change in the income of the
consumer holding, provided other things remains un changed.
Qy I Qy I
EI
Qy I I Qy
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2. Income elasticity demand…
Q = 50 I= 400
Qy I
E I = I Qy = (50/400)x(1200/100) = 1.5
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Income Elasticity of Demand (EI)…
Interpretation:
If EI = 1.5: A one percent increase income results in a
1.5 % increase in quantity demanded.
Classification:
If EI > 0, then the good is considered a normal good
or Superior goods (ex. food items , luxury).
If EI < 0, then the good is considered an inferior
good.
A good is a luxury good if income elasticity > 1.
A good is a necessity good if income elasticity < 1.
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Income Elasticity of Demand (EI)…
Normal goods have a positive income elasticity.
Classification:
If (Edyx > 0): implies that as the price of good X increases, the
quantity demanded of Good Y also increases. Thus, Y and X are
substitutes in consumption (ex. Coffee and tea).
If (Edyx < 0): implies that as the price of good X increases, the
quantity demanded of Good Y decreases. Thus Y & X are
Complements in consumption (ex. Milk and sugar).
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Factors Affecting Elasticity Of Demand
Nature of commodity
Availability of substitutes
Multiple uses
Deferred consumption
Position of the commodity in consumers budget
Time factor
Habit
Price change
Income group
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Features of price elasticity of demand
Features Elastic goods Inelastic goods
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Elasticity of demand in heath care…
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A model of demand for medical
care …
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A model of demand for medical
care …
Health is a consumption good means that health related
activity will improve the quality of life, prevent discomfort
or illness
E.g. cosmetic surgery, speech therapy, physiotherapy etc
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Michel Grossman’s Demand
Model
.
Individual client factors
[age, sex, education, occupation]
Prepayment factors
E.g.., private insurance, tax based health
Insurance, national health system,
managed care, co-payment
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Michel Grossman’s Demand
Model …
This method looks at health within the frame work
of a production function that is, health status
[output] is a result of health care activities [input] by
the environment, the individual, and the health
service system.
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Michel Grossman’s Demand
Model …
Health depreciated overtime, however an investment
is required to sustain health.
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Medical care demand
A view of medical care demand being derived from the
demand for health implies the following:
First, increase in age result in an increase in the rate at
which the person’s stock of health depreciates.
Over the life cycle people will attempt to offset part of
the increased rate of depreciation in their stock of health
by increasing their expenditure on health
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Medical care demand …
Second, the demand for medical care will increase
with increases in person’s wages.
There is a positive relationship between wages and
demand for health care.
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Up on completion of this unit, students will be able to:
Define what is Supply
Describe the Determinants of supply
Explain the Equilibrium of supply & demand
Identify Determinants of Supply Elasticity
Explain what is Price Elasticity of Supply
56
Supply Schedule
Supply means, the quantity of goods or services a
seller is willing to produce and sell.
The amounts of a good producers are willing and able
to sell at a given price.
The supply schedule of a commodity refers to the
relationship between the market price and the amount
of that commodity that producers are willing to
produce and sell.
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Supply Schedule …
Here the price is plotted on vertical axis--- quantity
of supply on horizontal axis.
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Supply curve
Price
P3
P2
P1
S1 S2 S3 supply
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Determinants of supply
The determinants of supply follow:
Production costs, how much a good costs to be
produced
The technology used in production, and/or
technological advances
The price of related goods
Supplier expectations about future prices
Number of suppliers.
Government restrictions.
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Equilibrium of supply & demand
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Equilibrium of supply & demand …
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Equilibrium of supply and demand…
Price
Supply
Equilibrium point
Demand
Quantity
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Analyzing Changes in Equilibrium
1. Change in demand- shifts in the demand curve.
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Price Elasticity of Supply
Supply elasticity: is a measure of how much sellers
respond to changes in price and other things.
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Substitution and Production Costs
The ease of substitution can vary in production as
well as in consumption.
If capital, labour, equipment and/or land can be
easily shifted from one product to another, then the
supply of Product A would be elastic.
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Determinants of Supply Elasticity….
Space Capacity
If the firm has lots of space to expand production
quickly, then the supply will be more elastic
Inventory
If the firm has a lot of raw materials and
components on hand, they can easily respond to a
change in demand, causing the supply curve to be
more elastic.
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Determinants of Supply
Elasticity…
Time period
Supply is more elastic when the firm has a longer
period of time to respond to changes in the market.
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Price Elasticity of Supply…
The price elasticity of supply is either zero or a
positive number.
A zero price elasticity of supply means that the
quantity supplied will not vary as the price varies.
A positive price elasticity of supply means that as
the price of an item rises, the quantity supplied
rises.
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Interpreting Elasticity of
Supply
If
Es > 1 elastic supply
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Features of price elasticity of Supply
Features Elastic goods Inelastic goods
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Price Elasticity of Supply…..
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Supply…
Factors That Cause an Increase (rightward or
upward shift) in Supply
1. A decrease in the cost of materials, labor, or other inputs
used in the production of the good or service.
2. An improvement in technology that reduces the cost of
producing the good or service.
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Supply in health care
Demand may also be induced by the supply or
provision of care
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Supply in health care …
An inappropriate or excessively frequent use of a
service is promoted and used by upper and middle class,
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