This document discusses demand and supply in healthcare. It begins by defining health economics as the application of economic principles to healthcare decision making. It then explains the law of demand, stating that demand increases when price decreases and decreases when price increases. Similarly, it describes the law of supply, which says that supply increases when price rises and decreases when price falls. The document outlines Michael Grossman's model of demand for healthcare, which views health as a consumption and investment commodity. It also discusses how supply of healthcare is determined and different types of economic evaluation used to analyze healthcare costs and outcomes.

1. DEMAND AND SUPPLY IN HEALTH
CARE
DR.SUNIL BHOYE
MPH(NUTRITION)

2. Content
1. Health economics
 Introduction
 What is health economics
 Importance of health economics
 Role of health economists
2 . Demand and supply in Health care
 Demands
 Law of demands
 Health care demand
 Supply
 Law of supply
 Supply of Health Care

3. Introduction
• In 1958, Selma Muskin published the papers
“Towards the definition of health economics”,
and in 1962 Selma Muskin published " Health as
an Investment".
• Probably, the single most famous and cited
contribution laying grounds for this discipline was
Kenneth Arrow’s paper “Uncertainty and the
welfare economics of medical care” published in
1963.

4. Introduction
• In 1968, the World Health Organization held its
first international health economics seminar in
Moscow.

5. Introduction
• Health economics is the application of economic
theory, models and empirical techniques to the
analysis of decision-making by individuals, health
care providers and governments with respect to
health and health care.

6. What is health economics
• Health economics is the discipline of
economics applied to the topic of health care.
1. What goods and services shall we produce?
2. How shall we produce them?
3. Who Shall receive them?

7. Importance of health economics
• The importance of the economic model is that
it provides useful insights into how health care
can be organized and financed and provides a
framework to address a broad range of issues
in an explicit and consistent manner.

8. Cont…
• Diagrammatic background to health economics— increasing
demands on limited resources (area of each circle reflects size
of each variable

9. Role of health economists
• Health economists are interested in the
production of health at a number of levels.
For example:
• What is health and how do we put a value on it?
• What influences health other than health care?
• What influences the demand for health care and
health care seeking behaviour?

10. Cont…
• What influences the supply of health care? (The
behaviour of doctors and health care providers.)
• Alternative ways of production and delivery of
health care.
• Planning, budgeting, and monitoring of health
care.
• Economic evaluation—relating the costs and
benefits of alternative ways of delivering health
care.

11. Demands
• Demand means desire to buy or consume
something.
• In Economics Demand refers not only to desire
but also ability and willingness to buy goods or
services.
• It means a consumer should have desire,
ability to pay for a product or service and
willingness to pay for it.

12. Law of demands
• The law can be explained in following manner. “
The other things being equal, a fall in price
leads to expansion in demand and a rise in price
leads to contraction in demand”.
• The law of demand can be expressed in
mathematical terms i.e. D=f(p)where D
represents demand ,P represents price and F
represents the functional relationship

13. HEALTH CARE DEMAND
• According to Michael Grossman’s 1972,
consumers have a demand for health for two
reasons:
• Health is a consumption commodity-it makes
the consumer feel better.
• Health is an investment commodity-a state of
health will determine the amount of time
available to the consumer for productivity

14. Cont…

15. Grossman’s model of demand for
health care

16. Cont…
• According to this model every one inherits a
stock of health when born.
• Health depreciated overtime, however an
investment is required to sustain health.
• As peoples age advances there is an increase in
rate of illness and in the utilization of health
services.

17. Cont…
• The stock of health can be sustained by
investment to maintain health, such as use of
health services and health promoting activities.
• A view of medical care demand being derived
from the demand for health implies the
following:
• Increase in age result in an increase in the rate
at which the persons stock of health
depreciates.

18. Cont…
• Over the life cycle people will attempt to offset part of
the increased rate of depreciation in their stock of
health by increasing their expenditure on health.
• The demand for medical care will increase with
increases in persons income.
• Education may have a negative effect on the demand
for health care, because more highly educated people
are presumed to be more efficient in producing health.

19. SUPPLY
• In economics Supply of a product during a given
period of time means the quantities of goods
which are offered for sale at particular prices.
• Hence, supply of a commodity may be defined
as the amount of that commodity which a
sellers are able and willing to offer for sale at a
particular price during a given period .

20. Cont…
• The ability of seller to supply a commodity
depends on the stock available with him.
• Similarly seller should have willingness to
supply a product.
• This depends upon the difference between
reservation price and the prevailing market
price or the price which is offered by the buyer
for that commodity.

21. Law of Supply
• The law of supply can be stated as “by keeping
other factor constant supply expands with rise in
price and contracts with fall in price”.
• The law of supply reflects the general tendency of
the producers in offering their stock of a product
for sale in relation to the changing prices.
• It has been observed that usually sellers are
willing to supply more with rise in prices. The
supply varies directly with the changes in price.

22. Supply of healthcare
• Economic evaluation is a comparison of two or more
alternative courses of action in terms of both their costs
and consequences.
• Economists usually distinguish several types of economic
evaluation differing in how consequences are measured:
• Cost minimization analysis
• Cost benefit analysis
• Cost-effectiveness analysis
• Cost utility analysis

23. Cont…
• In cost minimization analysis the effectiveness of
the comparators in question must be proven to
be equivalent.
• The cost-effective comparator is simply the one
which costs less(as it achieves the same outcome)
• In cost-benefits analysis(CBA) cost and benefits
are both valued in cash terms.
• Cost effectiveness analysis(CEA)measures
outcomes in a composite metric of both length
and quality of life the quality adjusted life
year(QALY)

24. Public health importance
• Against a background of increasing demands on
limited resources, health economics is exerting
an influence on decision making at all levels of
health care. Health economics seeks to facilitate
decision making by offering an explicit decision
making framework based on the principle of
efficiency. It is not the only consideration but it
is an important one and practitioners will need
to have an understanding of its basic principles.

25. References
• Introduction to health economics for the
medical practitioner by D P Kernick ,Postgrad
Med J 2003;79:147–150
• DEMAND AND SUPPLY IN HEALTH CARE by DR.NEHA
GHILDIYAL, ASST. PROFESSOR (DEPARTMENT OF
HOSPITAL ADMINISTRATION