Effects of Ageing Population on the Market for Healthcare (in Singapore)2014 Microeconomics – Research Paper Topic: Effects of ageing population on the market for healthcare (in Singapore) Content Page Abstract 3 Introduction 4 Changing Demand and Supply of Healthcare Resources 5 Changing Demand for Healthcare 5 Changing Supply for Healthcare 7 Market Structures in the Healthcare Industry 9 Healthcare as an economic good that needs government intervention 10 Conclusion 12 References 13 Abstract Over the years, healthcare has been a major concern in healthcare. The increase in demand for healthcare has caused for an increase in the supply. As over the years, the treatment for healthcare has become better as well. This means that newer equipment is being bough and hence a higher price to pay for the equipment, with better treatment comes higher cost. With an aging population, oligopolies which dominate the industries must cater to the needs of the demands and adjust themselves accordingly. Most oligopolies, such as hospitals, pharmaceutical companies, biotechnical companies, drug development companies and nursing homes produce and sell homogeneous products that has high barriers to entry. All these are the initial cash requirement which is an investment necessity for the research and development. Hence government intervention needs to be in place as without government intervention, market failure will occur due to the pricing being out of equilibrium. In a free market system, healthcare providers will be the price-setters who will decide the prices based on the market forces. As all companies are profit-driven, an economically inefficient system will be created and there will be a high quality healthcare where the demand is low as many people could not afford it. Government control of healthcare may not be as ideal as we think as being welfare driven; the quality of healthcare will drop drastically. A government intervention needs to be universal whereby both the quality of healthcare is high and it is accessible by all, and most importantly; being economically efficient. Introduction Health issues have always been a major concern for every country in the world. In the developed countries, the government plays a vital role in ensuring a guaranteed access to healthcare for the entire population through interventions such as funding and policies. As one of the leaders in the global healthcare system, Singapore has been successful in terms of ensuring economic efficiency while delivering high quality healthcare at affordable prices to its citizens over the decades. Utilizing a non-modified universal healthcare system, Singapore’s healthcare system is largely funded by individual contributions through compulsory savings known as Medisave, varying levels of subsidies determined through means testing, and price controls. Private healthcare still plays a role, but it takes ...

1. Effects of Ageing Population on the Market for Healthcare (in
Singapore)2014
Microeconomics – Research Paper
Topic: Effects of ageing population on the market for
healthcare (in Singapore)
Content Page
Abstract 3
Introduction 4
Changing Demand and Supply of Healthcare Resources
5
Changing Demand for Healthcare
5
Changing Supply for Healthcare
7
Market Structures in the Healthcare Industry
9
Healthcare as an economic good that needs government
intervention 10
Conclusion 12
References 13

2. Abstract
Over the years, healthcare has been a major concern in
healthcare. The increase in demand for healthcare has caused
for an increase in the supply. As over the years, the treatment
for healthcare has become better as well. This means that newer
equipment is being bough and hence a higher price to pay for
the equipment, with better treatment comes higher cost. With an
aging population, oligopolies which dominate the industries
must cater to the needs of the demands and adjust themselves
accordingly. Most oligopolies, such as hospitals, pharmaceutical
companies, biotechnical companies, drug development
companies and nursing homes produce and sell homogeneous
products that has high barriers to entry. All these are the initial
cash requirement which is an investment necessity for the
research and development. Hence government intervention
needs to be in place as without government intervention, market
failure will occur due to the pricing being out of equilibrium. In
a free market system, healthcare providers will be the price-
setters who will decide the prices based on the market forces.
As all companies are profit-driven, an economically inefficient
system will be created and there will be a high quality
healthcare where the demand is low as many people could not
afford it. Government control of healthcare may not be as ideal
as we think as being welfare driven; the quality of healthcare
will drop drastically. A government intervention needs to be
universal whereby both the quality of healthcare is high and it
is accessible by all, and most importantly; being economically
efficient.
Introduction
Health issues have always been a major concern for every
country in the world. In the developed countries, the
government plays a vital role in ensuring a guaranteed access to
healthcare for the entire population through interventions such

3. as funding and policies. As one of the leaders in the global
healthcare system, Singapore has been successful in terms of
ensuring economic efficiency while delivering high quality
healthcare at affordable prices to its citizens over the decades.
Utilizing a non-modified universal healthcare system,
Singapore’s healthcare system is largely funded by individual
contributions through compulsory savings known as Medisave,
varying levels of subsidies determined through means testing,
and price controls. Private healthcare still plays a role, but it
takes a backseat to the public system.
Over the decade, Singapore’s population has grown by 25
per cent and Singaporeans are also ageing rapidly. By the year
2030, senior citizens (age 65 and above) are expected to
comprise of about 20 per cent of the entire population. With a
rising demand for healthcare from a growing and ageing
population, Singapore’s healthcare system will need to shift
towards managing the changing demand. This paper intends to
address some of the key issues of the effects of ageing
population on the market for healthcare.
The first section of this paper illustrates the demand and
supply of resources in the past and how it has changed to suit
the changing demands. The second section describes the types
of market structures, particularly oligopolies that dominate the
healthcare industry. The third section discusses healthcare as a
basic human’s right, but yet it is also an economic good that
needs government intervention in order to offer the most benefit
to a society. Following which a conclusion will be drawn upon
based on the findings and real-world data.
Changing Demand and Supply of Healthcare Resources
Changing Demand for Healthcare
The rising costs or expenditure in healthcare shows that demand
for healthcare has risen in relative to the supply (Figure 1). The
initial demand for healthcare is D1, and the supply of healthcare

4. is S1. At market equilibrium, the price for that amount of
demand and supply will be P1. With a rising demand for
healthcare, the demand curve shifts outwards from D1 to D2.
Assuming ceteris paribus, the increase demand has caused the
price for healthcare to increase from P1 to P2.
The ageing of the population calls for increased demand in
healthcare. Coupled with an increased longevity, national
expenditure on healthcare will rise as well. According to the
World Health Organization, Singapore has the fourth best life
expectancy at 82 as of 2011, where women are expected to live
to 85 and men to the age of 80. The aged will require long-term
care expenditure in terms of more facilities such as hospital
beds and more paid help in terms of home-based caregivers and
nurses. In the Singapore Government’s Budget for 2012, the
government announced a projected doubling in healthcare
spending from the current SGD4 billion to about SGD8 billion a
year, in the next five years.
In order for the demand to increase, consumers must both be
willing to buy and have the ability to pay for it. With the rise in
subsidies provided for by the government, the aged are now able
to afford more healthcare services. The Singapore healthcare
financing system is aimed at helping to keep healthcare
affordable, commonly known as the ‘3M approach’ – MediSave,
MediShield and MediFund. More recently, the introduction of
the Pioneer Generation Package this year is targeted at the aged,
benefiting about 450,000 Singaporeans through further
subsidized primary care, dental care and health screening.
Changing Supply for Healthcare
Healthcare costs or expenditure of healthcare may rise
without a change in demand, but instead be forced to rise due to
a leftward shift of the supply curve (Figure 2). This shift may
be caused by a rise in cost of supply healthcare services.

5. When technologies improve, healthcare services may become
more costly due to the monetary investment needed to fund the
research and development process. Also, other resources such as
the cost of supplying treatment and prescription drugs have
contributed to the rising cost of healthcare. On average, the cost
of developing a new drug by a major pharmaceutical company
cost at least $4 billion and the cost may rise to a staggering $11
billion. Some of the contributing reasons to this huge cost lie
in government restrictions such as drug testing, as well as
patents.
The supply of healthcare providers has been stagnant over the
decades, partly due to the long working hours and psychological
stress faced as part of the job-scope. In response to the
increasing demand for healthcare, the Singapore government has
invested heavily to nurture a pool of healthcare providers
including doctors and nurses. As one of the main strategies in
the Healthcare 2020 Masterplan, the Ministry of Health (MOH)
aims to expand the capacity of the healthcare system in terms of
infrastructure and manpower, through initiatives such as
increasing the annual intake at the NUS Yong Loo Lin School
of Medicine and the opening of the Duke-NUS Graduate
Medical School in 2007.
Market Structures in the Healthcare Industry
As the demand and supply of healthcare resources change with
the rising ageing population, the markets providing these
resources will have to adjust themselves accordingly as well.
The healthcare system is dominated by oligopolies, which refers
to an industry with a few large firms that produce and sell either
homogeneous or differentiated products, and it has high barriers
to entry. Examples will include the hospitals, pharmaceutical
companies, biotechnical companies, drug development
companies and nursing homes.

6. The barriers to entry in the healthcare industry are generally the
initial cash investment necessary for research and development,
regulatory requirements and government controls. These
barriers enable oligopolies to earn supernormal profits in the
short run, and also in the long run due to fewer competitors. In
Figure 3, at output Q1, the average revenue (AR) is greater than
average cost (AC), reflecting the shaded area as the
supernormal profits earned. Also, the demand curve for
healthcare is likely to be relatively inelastic due to healthcare
being regarded as a need. This makes the price of healthcare to
be less responsive to the changes in the economy.
Figure 3
An example of a barrier to entry would be the government
setting a limit on the supply of health professionals by allowing
only those who have qualified the required education, licensing
and experience to practice the various health professions. This
protects the quality of healthcare supplied to the population, as
well as to regulate competition within the industry.
Healthcare as an economic good that needs government
intervention
Without government intervention, market failure will occur
due to the pricing being out of equilibrium. In Figure 4, point A
shows people who are willing to buy but unable to afford
healthcare at the given price (Pe). Point B shows those who are
willing and able to pay for healthcare at the given price (Pe) but
there is a lack in quantity. Assuming ceteris paribus, a shift in
either the demand curve caused by increased demand (Figure 1)
or in the supply curve due to shortage (Figure 2) will cause the
price to increase.

7. Figure 4
In a free market system, healthcare providers will be the price-
setters who will decide the prices based on the market forces.
Being profit-driven, an economically inefficient system will be
created, where there will be high quality healthcare in exchange
for the decrease in accessibility to affordable healthcare. On the
other hand, full governmental control of the healthcare system
is not ideal as well. Being welfare-driven, it will guarantee
access by all but the quality of healthcare will drop drastically.
As such, government intervention in a universal healthcare
system is needed to ensure a high quality healthcare system that
is accessible by all. And more importantly, it will be
economically efficient.
Conclusion
In conclusion, healthcare is an economic good as it fits the
definition of willing and the ability of being able to buy and sell
in basic economics. However, people see it as basic human’s
right, thus forcing the government to take responsibility by
intervening the market in order to meet the high demand of
healthcare required by the companies as well as making it
affordable for the people. As such, the government has to
exercise a balance between both the private and public
interventions such as what the government in Singapore is doing
by providing grants and medical basic medical care for the
people to allow for economic efficiency.
Works Cited
(2014). Age Invaders. The Economist.
Sanjay Basu, J. A. (2012, June 19). Comparative Performance of
Private and Public Healthcare Systems in Low- and Middle-
Income Countries: A Systematic Review. Retrieved from
http://www.plosmedicine.org/:
http://www.plosmedicine.org/article/info%3Adoi%2F10.1371%2

8. Fjournal.pmed.1001244
William Boyes, M. M. (2012). microeconomics 9th edition.
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