Health Economics Demand

8/10/2019 Health Economics Demand

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And Health CareServices

By: Kimberly Estilles


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What is Demand?

refers to the quantity or amount

of goods or services consumers arewilling and able to buy at a given

price, place, and at a givenperiod of time.


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Determinants of Demand

Determine the quantity of demand

Factor that influence how much ofa certain good and services peopleare willing to buy


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1. Price Factor A. Price of the good or service

- This is what the people considerin buying a certain good/service.

- price = demand (vice-versa)


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2. Non-Price Factors: A. Consumers Income

- Change in income = change in demand- Consumers buy more when income

increases- Demand decreases once income

decreases


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A. Consumers Income I. Normal Goods/Services

- goods/services increase whenincome increases.

ex: people go to health spa centersif the income rises


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A. Consumers Income II. Inferior Goods/Services

- goods/services fall when incomedecreases.

ex: diet modification instead ofliposuction as a means of reducingweight


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2. Non-Price Factors:B. Changes in Consumers Taste &

Preferences

- Increase in the taste/preference for acertain good will increase the demand

Ex: people prefer food that reduce chance ofheart disease = high demand for high fiber

diets


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2. Non-Price Factors:C. The Size of Population

- Increase in population = increase indemand ( vice-versa )

- As population grows, demand for healthservices increases


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2. Non-Price Factors:D. Prices of Related Goods and Services

- Quantity demand for any good/serviceaffected by changes in prices of relatedgood/service either substitute orcomplementary


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I. Substitute goods/services- can be used in place of othergoods/services- increase in the price of one good willcause an increase in the demand for theother good (vice-versa)


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II. Complementary goods/services- goods consumed together

- increase in the price of one good willcause an decrease in the demand for theother good


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2. Non-Price Factors:E. Consumers Expectation of Future Prices - Quantity of a good/service demanded within

any period depends not only on prices in thatperiod but also on prices in the future

- When someone expects higher prices in thefuture, tendency is to buy more of it today


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Demand Schedule

Relationship bet. the quantity of agood/service demanded and the price ofthat good/service.

Quantity demanded of a good at diff. pricelevels

Easy to determine the expected quantity

demanded form of a table


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Demand Schedule

https://courses.byui.edu/econ_150/econ_150_old_site/lesson_03.htm


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Demand Curve

shows graphically the relationship bet. thequantity of a good/service demanded andits corresponding price, w/ other variablesheld constant.

typically downward-sloping form of a graph


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Demand Function

Another way of presenting the relationship bet.the price and quantity demanded

Form of a mathematical expression

Eqn: Qd = f (P, Y,Pr, Ps)where; Qd = quantity demand

P = price of goods/services

Y = income of consumersPr = price of related commoditiesPs = population size


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Law of Demand

When the pricegoes up

The quantity

demandedgoes downAnd vice-versa*


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Validity of the Law of Demand

The law of demand is only true if otherdeterminants remain constant, no change, andmovement in income, population, and others.

Ex: Price of foot spa decreases by 50% fromoriginal price, then the quantity demanded forsuch treatment increases (only true if othervariables remain constant like consumersincome)


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Justification for the Law of

Demand A. Income Effect- when the price of goods decreases, the

consumers can afford to buy more of it orvice-versa

B. Substitution Effect

- If the price of good the consumer buyincreases, they look for substitutions w/ alower price


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Demand Terminology

Change in Quantity Demand movement ofpoints along a demand curve. Indicatesmovement from one point to another of the samedemand curve.

Ex: price of liposuction procedure falls from20,000Php to 10,000Php. This will causequantity demanded to increase from 20-40persons or from point X to Y.


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Demand Terminology

Change in Quantity Demand

20

10

10 20 30 40

Liposuction Procedure

Price

Quantity


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Demand Terminology

Change in Demand shifting from one demandcurve to another. Brought by the changes in alldeterminants except price.

*Shifting of demand curve to the right is calledincrease in demand

* Shifting of demand curve to the left is calleddecrease in demand


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Demand A) Determinants of Demand1. Price Factor2. Non-price factor

A. consumers income

I. Normal Goods/ServicesII. Inferior Goods/Services

B. Changes in Consumers Taste and Preferences C. The size of populationD. Prices of Related Goods and Services

I. Substitute goods/servicesII. Complementary goods

E. Consumers Expectation of Future Prices B) Demand of ScheduleC) Demand CurveD) Demand Function

Law of Demand A) Validity of the law of demandB) Justification for the law of demand

1. Income effect2. Substitution effect

Demand Terminology A) Change in Quantity DemandB) Change in Demand


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What is Supply?

Amount or quantity of goods/services

producers are willing and able to supply ata given price, at a period of time.


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Determinants of Supply

1. Price Factor sellers would tend tosupply more of the good at higher prices.Therefore, more goods are found in themarket at higher prices.

Ex. More students take up nursing due tohigher salary


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1. Non-Price Factor A.Cost of input used an increase in the price of

an input or the cost of production decreases the

quantity supply bec. the profitability of certainbusiness decreases.

B.Change in Technology machines that usetechnology increase quantity supply of good w/ccauses the reduction of cost of production


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C. Government Regulations and Taxes higher degree of regulation will translate tolower supply in the market

D. Government Subsidies financial aidsgiven by the government reduce cost ofproduction which encourages more supply

E. No. of firms in the market increase inthe no. of firms in the market leads to anincrease in supply of health goods


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F. Expectation of future price whenproducers expect higher prices in thefuture, the tendency is to keep their healthproducts and release them when the pricerises

G. Change in the price of related goods changes in the price of goods/serviceshave a significant effect in the supply ofsuch good/services.


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Supply Schedule

The relationship bet. the quantity of agood/service supplied and its price (otherfactors are held constant).

Price (Php) Quantity Supply

1 10

2 20

3 30

4 40

5 50


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Supply Curve

Shows graphically the quantity of a goodsupplied at each price, with other factorsheld constant.

6

5

4

3

21 P

r i c e

10 20 30 40 50 Quantity


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Supply Function A mathematical expression of the Law of Supply

or the relationship between price (P) andquantity supply (Qs).

Equation: Qs = f (P,Ci,Pi,Gt, Gs,N)

Qs = quantity supplied P = price of goods and services Ci = change in technology

Pi = cost of inputs used Gt = govt taxes Gs = govt subsidies

N = no. of firm in the market


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Supply Function

Taking into account that all factors areconstant (except price), the supplyfunction can be expressed as:

Qs=m + nP +oCi + pPi + qGt + rGs + sN Where m is the intercept and n is the slope

of the function All fixed variables will be added to the

supply function expressed as: Qs = m +nP + x


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Supply Function

Unlike the demand curve, supply curvehas a positive slope where x is the sum ofoCi + pPi + qGt + rGs + sN and assumedto be constant having 0 value

Using the supply schedule of skinwhitening prod. , supply function isestimated as:

Qs = 0+10P Let us use 2 as the value of price, hence


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Supply Function

Hence,Qs = 0 + 10P

Qs = 0 + 10(2)Qs = 10(2)Qs = 20


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Law of Supply

States that as prices increases, quantitysupplied also increases; and as price

decreases, quantity supplied alsodecreases.


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Validity of the Law of Supply

Just like the law of demand, the law of supply isonly correct if the assumption is ceteris paribus(determinants remain constant).

Ex. The price of anti-rabies vaccine increases from1,000Php to 3,000Php and w/ the cost ofproduction remaining constant, the producergets more profit and is induced to produce more


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Supply Terminology

Change in quantity supplied movement alongthe supply curve. Due to a change in the price ofgoods/services

Change in supply shifting from one supplycurve to another* Shifting of the supply curve to the right

indicates that there is an increase in supply* to the left indicates decrease in supply


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Determination of MarketEquilibrium

State which implies a balance betweenthe opposing forces, a situation in whichquantity demanded and quantity suppliedare equal.


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Market Equilibrium (tabular approach) Market Equilibrium (graphical approach)

Market Equilibrium (mathematicalapproach)


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Market Shock

Anything which moves a market out of

equilibrium.

Supply


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A) Determinants of Supply1. Price Factor2. Non-price factor

a. Cost of Input Used

b. Change in technologyc. Govt regulations and taxes d. Govt subsidies e. No. of firms in the marketf. Expectation of future price

B) Supply ScheduleC) Supply CurveD) Supply Function

Law of Supply A) Validity of the law of supply

Supply Terminology

A) Change in quantity supplyB) Change in supply

Determination of Equilibrium A) Market Equilibrium

1. tabular approach2. graphical approach

Health Economics Demand

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