Post on 13-Apr-2018
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Economics
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Shift in Demand Curve
Demand curve may shift tothe left Not willing to pay as much
Thus price drops
Due to drop in income
Demand curve may shift tothe right willing to pay more for
product Due to: Increased population
Increased income
Changes in tasteDemand curve shift to the left
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Shift in Supply Curve
If it becomes easier toproduce a product,supply curve will shiftto right More farmland More children for labor Fertilizer available Water available
Technology available Price drops
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DETERMINANTS OF DEMANDPRICE
POPULATION
INCREASE IN POPULATION= DEMAND INCREASE
DECREASE IN POPULATION= DEMAND DECREASE
***SOME EXCEPTIONS
PRICES OF RELATEDGOODS
SUBSTITUTE GOODS =
Goods that can be used toreplace the purchase of similargoods. (Butter &Margarine)
*An increase in a productsprice leads to an increaseddemand for the productssubstitute goods.
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Income Elasticity of Demand
INCOME INCOME INCREASE
= DEMANDINCREASE
INCOME DECREASE= DEMANDDECREASE
***SOMEEXCEPTIONS
East Java market
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Engels Law
The proportion ofhousehold budgetspent on food
decreases as incomeincreases Wealthy spend less %
of their wealth on food
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Bennetts Law
The ratio of starchyfoods in the diet fallsas income rises
Poor eat more starchy
foods Grains Root crops
Wealthy eat moremeat, fruit, vegetables
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..DETERMINANTS OF DEMAND
PRICES OF RELATEDGOODS
Complementary Goods Goods that are commonlyused with other goods.(Paintbrush & Paint)
*An increase in a products priceleads to an decreased demandfor that productscomplementary goods.
PRICES OF RELATEDGOODS
SUBSTITUTE GOODS =Goods that can be used toreplace the purchase of similargoods. (Butter &Margarine)
*An increase in a productsprice leads to an increaseddemand for the productssubstitute goods.
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DETERMINANTS OF DEMAND
COUNSUMER EXPECTATIONS
Expectations of increased income = demandincrease
Expectations of decreased income = demanddecrease
Expectations of increased in PRICE = demandincrease in the current period
Expectations of decreased in price = demanddecrease in the current period
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DETERMINANTS OF DEMANDCOUNSUMER TASTES AND
PREFERENCES
POPULARITY INCREASE =DEMAND INCREASE
POPULARITY DECREASE =DEMAND DECREASE
MARKET SIZE
MARKET SIZE INCREASE =DEMAND INCREASE
MARKET SIZE DECREASE =
DEMAND DECREASE
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Increase In The Demand For Ice Cream
Tastes & preferences
Demand curve shifts right
Shortage at initial price
P to restore equilibrium (sellers respond, Qs)
New equilibrium: higher P & higher Q
D Disequilibrium
P adjustment
Qs response Law of S
Hot Weather
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Increase In The Demand For Ice Cream
Price ofIce-Cream
Cone
Quantity ofIce-Cream Cones
SupplySupply
Initialequilibrium
Initialequilibrium
DD
DD
3. . . . and a higherquantity sold.3. . . . and a higherquantity sold.
2. . . . resultingin a higherprice . . .
2. . . . resultingin a higherprice . . .
2. . . . resultingin a higherprice . . .
1. Hot weather increasesthe demand for ice cream . . .1. Hot weather increasesthe demand for ice cream . . .
2.00
7
2.00
7
New equilibrium$2.50
10
New equilibrium$2.50
10
$2.50
10
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Factors That Shift The Demand Curve
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DETERMINANTS OF SUPPLY
Price
Number of sellers
Cost of Production
Availability of inputs
Taxes
Consumers Price Expectation
h Shif h S l C
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Factors That Shift The Supply Curve
M k Sh k
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Market Shocks
What Happens to Price and QuantityWhen Supply or Demand Shifts?
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Law of Demand and Supply
When there is shortage , price will increase;When there is surplus, price will decrease
Qd> Qs , price is high
Qs>Qd, price is low
Qd=Qd, price is constant
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Price QuantityDemand
QuantitySupply
MarketCondition
PriceCondition
20 100 20 Shortage High
35 80 40 Shortage High
50 60 60 Equilibrium Constant
65 40 80 Surplus Low
80 20 100 Surplus Low
M k t Effi i
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Market Efficiency
The Invisible Hand
guides decision-making
rewards efficient producers and consumers
goods society wants prices society is willing and able to pay
M k t & C titi
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Markets & Competition
Competition Regulates Markets
buyers and sellers both gain from exchange
prices adjust to encourage trade
markets clear competition directs goods & services
(resources) to their most highly-valued uses
Markets & Competition
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Markets & Competition
Market Forces & Equilibrium
Price floats to where Qs = Qd and the market clears.
This price facilitates all transactions that can
improve the well-being of market participants.
Goods purchased by those with highest value.
Goods produced by those with lowest opportunitycost.
The well-being of society is maximized.
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HEALTH MARKET
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DEMAND AND SUPPLY
OF
HEALTH CARE
Analysis of how the basic theory ineconomics maybe applied to health
care
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outline The problem of scarcity is
exceptionally acute in healthsector
Assumptions : consumers areutility maximizers
The demand and supply ofhealth care may not behave inthe way that economic theorypredicts
The possibility of market
failure
Conditions for ideal market :certainty, no externalities,perfect knowledge, consumersto act free of self interestedadvice from health care
providers, small suppliers Clinical iceberg
Imperfect agency
Conditions favoring demand
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FRAMEWORK OF HEALTH CARE MARKET
1. What health care interventions or treatmentsshould be available?
2. How should these treatments be provided?
3. Who should receive these treatments?
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APPLYING THE THEORY OF DEMAND TO
HEALTH CARE1. Are consumers of health care utility maximizers?2. Is there an inverse relationship between the price
of health care and the quantity of health care
demanded?3. Is the quantity of health care demanded affected
by the level of income?
4. To what extent is the quantity of health care
demanded affected by the prices of other goods5. Is the amount of health care demanded affected
by tastes and trends?
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Are consumers of health careutility maximizers?
Is there an inverse relationshipbetween the price of health care
and the quantity of health caredemanded?
Health care is demanded if it isabsolutely necessity
Short-term costs overshadowslong term returns
Standard economic theory
Demand for health care may not
be well affected by pricea. A rise in the price of healthcare
- constraint of income
-absolute necessity
b. A fall in the price of healthcare
- involves disutility
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Is the quantity of health caredemanded affected by thelevel of income?
To what extent is the quantityof health care demandedaffected by the prices of
other goods
Normal goods exhibits positiverelationship
Budget constraint
Largely unaffected
Factors affecting health : diet,level of exercise, livingconditions and lifestyle
Related Goods : Substituteand Complimentary Goods
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Is the amount of health caredemanded affected by tastes
and trends?
Factors affecting tastes andpreferences : convenience,custom and attitudes
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APPLYING THE THEORY OF SUPPLY TOHEALTH CARE1. Are health care providers
profit maximizers?
2. Is there a positive relationship
between the price of healthcare and the quantity ofhealth care supplied?
3. What impact do the costs ofproduction have on supply ofhealth care?
4. How do changes intechnology affect the quantityof health care supplied?
5. To what extent is the quantityof health care suppliedaffected by the prices of other
goods?
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Are health care providersprofit maximizers?
Is there a positive relationshipbetween the price of healthcare and the quantity of
health care supplied? Benevolence maximize thewelfare of the patients,regardless of the costs
WORLD OF SCARCITY
Profit maximization Income and Profit :
determinant for health carelevel provision
1. Rise in Price Level upwardsloping
2. A fall in price level- upwardsloping
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What impact do the costs ofproduction have on supplyof health care?
How do changes in technologyaffect the quantity of healthcare supplied?
Cost of Production affects levelof supply
Budget constraint
Technology supply larger andbetter quantities of goods andservices
Medical Technology,
Laboratory Faciltiies
Nurses
Physicians
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To what extent is the quantityof health care suppliedaffected by the prices of
other goods?
Directly affected
Health care providerspecializing obstetricsprocedure may decide to
concentrate more ongynecological procedures
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ISSUES ON MARKET FAILURE IN THE
HEALTH SECTOR1. Certainty2. No externalities : spillovers from other peoples
production or consumption of goods that affectan individual in either a positive or negativeway
3. Perfect Knowledge4. Consumers to act free of self interested advice
from health care providers5. Several small suppliers to promote genuine
competition
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PERFECT KNOWLEDGE
PATIENT HEALTH CARE PROVIDERS
Information about the health
status Information about available
treatments
Information about theeffectiveness of treatment
Medical Knowledge
Knowledge of the PatientsCircumstances
Knowledge of the patientsindividual preference
1. Health care providers may not have the information requiredto act as a perfect agent
2. Health care providers may exploit the ignorance of consumersin order to maximize their own utility
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NATURE OF HEALTH CAREDERIVED DEMAND SUPPLIER INDUCED
DEMAND
1. Consumption benefits
2. Investment benefits
1. Fee for service
reimbursement2. Third party payment
3. Limited peer review
4. Infrequent purchase ofhealth care
5. Medico-judicial environment
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CLINICAL ICEBERG
Inpatients
Outpatients
GP
Individuals with symptomstaking non-health action
Individuals withsymptoms taking no action
Individuals with nosymptoms
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FACTORS AFFECTING ILLNESS BEHAVIOR The visibility and recognisability of symptoms The extent to which the symptoms are perceive as serious The extent to which symptoms disrupt family, work and other
social activities The frequency and persistence of the appearance of symptoms The tolerance threshold of those who are exposed to and
evaluate symptoms The available information, knowledge and cultural
assumptions to evaluate The needs competing with illness responses
The possible competing interpretations that can be assignedto the symptoms once they are recognised The availability of treatment resources The monetary costs of taking actions
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Other factors affecting demand for
health 1. size of population
2. health status of population
3. method of hospital admission
4. cost to patients of consumption
5. supply and availability of health resources and
unmet need 6.clinical uncertainty
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CONDITIONS FAVOURING DEMAND
INDUCEMENT1. Fee for service reimbursement
2. Third party payment
3. Limited peer review
4. Infrequent purchase of health care
5. Medico-judicial environment
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TRENDS IN THE HEALTH MARKET
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