Respond to each of the following questions (150 words each) that apply the econo

Question

Respond to each of the following questions (150 words each) that apply the economic concepts described in this topic's assigned readings in The Economics of Health and Medical Care.

Write the formula for price elasticity of demand and describe what it means.

How would you expect the price elasticity of demand for health care to vary with health status?

Would the demand for health care increase or decrease with an improvement in educational attainment in the community?

Studies using macroeconomic data indicate higher income elasticity for health care. Does that make health care an inferior, normal, or superior good? Explain.

Describe the components of time cost in health care. Is time less costly for patients with higher wage rates? Explain.

Explanation / Answer

1. ANS: Price elasticity of demand measures the responsiveness of demand after a change in a product's own price.

The formula for elastic demand is the percent change in quantity demanded divided by the percent change in price.

Elastic demand is when the percent change in the quantity demanded exceeds the percent change in price. That makes the ratio more than one. For example, say the quantity demanded rose 10 percent when the price fell 5 percent. The ratio is 0.10/0.05 = 2.00.

2. ANS: Experts believe that price elasticity for health care is inelastic. As the health status of the patient deteriorates, the price elasticity of demand for health care services will become more inelastic AS they will not consider the alternatives but rely on the doctor's advice. When the patient's condition is stable, the price elasticity of demand for healthcare will become relatively elastic and the patient can look for options.

3. ANS: Improvement in the educational attainment of the community will decrease the demand for health care. There will be enhanced awareness about ensuring health safety in the community. Thus, individuals will take measures to prevent the incidence of diseases. Thus, the demand for medicines etc will reduce if individuals are educated.

4. ANS: Using macroeconomic data, the higher income elasticity makes health care a superior good. A superior good is a good that when income increases it causes demand for the good to increase and income elasticity of demand (IEoD) is positive and greater than one. A normal good has IEoD of less than or equal to one and greater than zero. A superior good and normal good are very similar in that when there is an increase in income there is a shift to the right on the demand curve. The difference between a superior good and a normal good is the distinction that income elasticity of demand is greater than one. Individuals purchase a substantial amount more of a superior good as their income increases than on a normal good as is the case with health care. Economist Robert Fogel explains, “the main factor is that the long-term income elasticity of the demand for health care is 1.6, for every 1 percent increase in a family's income, the family wants to increase its expenditures on health care by 1.6 percent” (Fogel,2009).

5. ANS: Time cost is defined as the value of time that is used in any given activity. The time cost of consuming a healthcare product can be determined by two major factors which include the time that is taken by patient when they are waiting for an appointment and the time that clients take when travelling to the healthcare facility. Another component of time cost in healthcare services is when it comes to insurance and the wages of patients. Insurance is thought as a time cost component for health care since it can determine the health care that the patient should look for and which the insurance providers use. Now when it comes to wage it is also a time cost component of insurance since it will determines the chance cost of the patient as a result of seeking health care service. Time is more costly for patients with higher wage rates. This is because the patients with higher wage rates will have high opportunity cost of time.

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