This document discusses concepts related to the demand for medical care. It covers how the demand for medical care is derived from the demand for health, and how demand is affected by factors like out-of-pocket prices, income, time costs, quality of care, and an individual's health status. The document also explains the law of demand, price elasticity of demand, and how elasticity is determined by characteristics of the good or service, like availability of substitutes, whether it is a necessity or luxury, and its share of the consumer's budget.

1. Health Economics
!
Lecture 7
The Demand for Medical
Care

2. SPECIAL
!
This week only
Gall Blatter surgery
50% percent off

3. Derived Demand

4. Derived Demand
Getting health by buying
medical care

8. Normal
Market

9. Normal
Market
Medical
Market

10. Normal
Market
Medical
Market
Planned

11. Normal
Market
Medical
Market
Planned Yes

12. Normal
Market
Medical
Market
Planned Yes No

13. Normal
Market
Medical
Market
Planned Yes No
Know Price

14. Normal
Market
Medical
Market
Planned Yes No
Know Price Yes

15. Normal
Market
Medical
Market
Planned Yes No
Know Price Yes No

16. Normal
Market
Medical
Market
Planned Yes No
Know Price Yes No
Guarantee

17. Normal
Market
Medical
Market
Planned Yes No
Know Price Yes No
Guarantee Yes

18. Normal
Market
Medical
Market
Planned Yes No
Know Price Yes No
Guarantee Yes No

19. Normal
Market
Medical
Market
Planned Yes No
Know Price Yes No
Guarantee Yes No
Equal Information

20. Normal
Market
Medical
Market
Planned Yes No
Know Price Yes No
Guarantee Yes No
Equal Information Yes

21. Normal
Market
Medical
Market
Planned Yes No
Know Price Yes No
Guarantee Yes No
Equal Information Yes No

22. Health
Health and Medical Costs
Medical Costs
Large
Gain
Diminishing Marginal Utility
Small
Gain

23. The Law of Demand
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity

24. The Law of Demand
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity

25. The Law of Demand
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity

26. The Law of Demand
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity

27. The Law of Demand
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity

28. The Law of Demand
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity

29. The Law of Demand
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity

30. The Law of Demand
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity

31. The Law of Demand
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity

32. Law of Demand !
When price falls
quantity demand increases
!
When price increases
quantity demanded falls.

33. Demand for Medical Care

34. Demand for Medical Care
out-of-pocket price
income
time costs
prices of substitutes and compliments
tastes and preferences
physical and mental profile
state of health
quality of care

35. Out-of-Pocket Price

36. Out-of-Pocket Price
After insurance
Coinsurance
Copayments
Deductible

37. Income

38. Income
Higher income tends to
demand more medical care

39. Time Costs

40. Time Costs
Time to visit medical
provider and the
opportunity costs

41. Prices of Substitutes and
Compliments

42. Prices of Substitutes and
Compliments
OR
!
AND

43. Tastes and Preferences

44. Tastes and Preferences
Marital Status - less
Education - ?
Lifestyle - risky

45. Physical and Mental Profile

46. Physical and Mental Profile
Gender - women more
Race/Ethnicity
Age - older more

47. State of Health

48. State of Health
Sicker - More
Unhealthy - More

49. Quality of Care

50. Quality of Care
Hard to measure
nice office
!
perception is more
important than reality

51. Market Demand
!
Intensive Margin
Do you buy more or less when
the price changes
!
Extensive Margin
Do more or fewer people buy
when the price changes

52. Elasticity
!
A measure of how much
one economic variable
responds
to changes in
another economic variable

53. Elasticity
Percentage Change in
Quantity Demanded
Percentage Change in
Price

56. Price Elasticity of Demand

57. Price Elasticity of Demand

58. Price Elasticity of Demand
%
%

59. Price Elasticity of Demand
%
%
QD

60. Price Elasticity of Demand
%
%
QD
P

61. Price Elasticity of Demand
%
%
QD
P
Percentage Change in Quantity
Demanded
Percentage Change in Price

62. Price Elasticity of Demand
1. Calculate Elasticity
2. Take Absolute Value
3. Compare to benchmark of 1
Inelastic Elastic
<1 >1
1

63. What determines
Price Elasticity of
Demand?

64. Close Substitutes
Passage of Time
Luxuries vs. Necessities
Definition of Market
Share of Budget

65. Close Substitutes

66. Close Substitutes

67. Close Substitutes
Elastic >1

68. Close Substitutes
Elastic >1

69. Close Substitutes
Elastic >1
Inelastic <1

70. Passage of Time

71. Passage of Time
More Time
More Elastic

72. Luxuries vs. Necessities

73. Luxuries vs. Necessities
Elastic

74. Luxuries vs. Necessities
Elastic Inelastic

75. Share of the Budget
Small Large

76. Share of the Budget
Small Large
Inelastic

77. Share of the Budget
Small Large
Inelastic Elastic

78. Price Elasticity of Demand
% QD
!
% P

79. $8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price

80. $8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price

81. $8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price

82. $8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price

83. $8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price

84. $8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
%rQD
%rP

85. $8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
%rQD
%rP
(4-5)÷5
(6-3)÷3

86. $8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
%rQD
%rP
(4-5)÷5
(6-3)÷3
-20%
+100%

87. $8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
%rQD
%rP
(4-5)÷5
(6-3)÷3
-20%
+100%
.2

88. Close Substitutes
Passage of Time
Luxuries vs. Necessities
Definition of Market
Share of Budget

89. Income Elasticity of Demand
!
Normal, Inferior, or Luxury?
% QD
!
% I

90. Income Elasticity of Demand
Inferior Normal
<0 >1
0
1
Luxury
0 to 1