HC is not a perfectly competitive market -- so need more insight. If it were perf, comp, then all allocations would be optimal
Note: some goods can be bad for you!
Different combinations of X and H lead to different levels of utility. Assuming that as x and h increase, U increases. Fix X at x1 and increase H, then U increases At
Many combinations of X and H; unlikely to hold one constant; rather, consider combinations of X and H for given levels of Utility. Then, given a set of constraints (Budget), will maximize utility. Now, do the same for higher and lower levels of utility.
Healthy -- low demand, lower prices willing to pay; more inelastic as less healthy
Say there is a $1000 deductible and that office visits for a procedure cost $200. Once that deductible is met, go back to verticle demand -- no price sensitivity.
Very inelastic demand - smaller welfare loss when insured; the more price sensitive the demand for medical care, the less desirable it is to insure against that risk with health insurance ; a market equilibrium would be a lower quantity demanded and higher price. Because of market intervention, there is a loss to society in “overproduction”
Quality: structure - facilites, training, management; process quality: access-waiting time, data collection, communication with paitent, diagnosis and treatment; outcome quality: impact of care -- pt satisfaction, lost work time, post care mortality/mornbidity
Curve is called Total Product; exhibuts law of diminishing marginal productivity; health increases at a decreasing rate as Medical Care is added; Can even exhibit negative returns: iatrogenic disease (e.g. catch something inpt, wrong medicine, wrong procedure. Note -- “catch up effect” consider poor countries with little access to health care, clean water, etc.
Disease II: start with better health; treatment is more effective Disease I: start with worse health, treatment not as effective, but not worthless
Example: Breast Cancer scrreing
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Market driven system: price rations scarce goods and services among consumers
Non-price system: rationing based on waiting time, age, severity of illness, etc.
The Consumer Determined by regulators Availability of substitutes/complements Yes (for most goods and services) OOP does not reflect full price of service Pays price Yes Weak direct knowledge; based on trust Knows Quality Yes Weak knowledge Knows Price Yes Health Care Generic Industry
The Producer Mixed MD’s : other motivations Non-profits: no Pharmaceutical cos.: yes Profit maximizer yes Yes: licensing, certification, etc. restricts competition Regulation To address externalities; Taken into account in market models Less certainty: efficacy of treatment; scale: very certain to very vague Known Production Function Yes Health Care Generic Industry