Demand and Elasticity in Health Care

Demand and Elasticity in Health Care

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1) Write the formula for price elasticity of demand and describe what it means.

The price elasticity of demand can be calculated by dividing the percentage change in quantity demanded by the percentage change in prices. The formulae for price elasticity of demand, PEoD = (% change in quantity demanded)/ (% change in price). Price elasticity of demand indicates the response of the quantity demanded of a product because of the changes in prices of the product (Dewar, 2011). It is a measure that shows how changes in price of a product affect the quantity demanded of the product. The price elasticity of demand is measured in absolute terms as opposed to changes in relative amounts. This is because the relative value of price elasticity of demand is often negative but in the calculation it is often expressed in absolute value terms.

The price elasticity of demand can take up three main forms that include elastic demand, unit elastic demand and inelastic demand. Elastic demand is a case where the price elasticity of demand has a value that is more than 1, unit elasticity of demand is a case when a 1 percent change in price results to a 1 percent change in quantity demanded. Inelastic price elasticity of demand is case where the price elasticity of demand is less than 1.
2) How would you expect the price elasticity of demand for health care to vary with health status?

The price elasticity of demand for health care can vary with the health status of patients. Healthcare services have relatively low price elasticity of demand. Experts believe that price elasticity for health care is inelastic. This implies that patients are not sensitive to changes in the price of health care services. As the health status of patients deteriorates, the price elasticity of demand of health care services will become more inelastic. This is because the patients will not be able to consider the alternatives but rely on the physician advice to get the health care services. When the client’s health status is stable, the price elasticity of demand for health care will become less elastic. In this case, the patient can choose the medical health care to seek treatment based on the prices. Hence it can be argued that as the health status of patients become worse, the price elasticity of demand for health care services become more inelastic (Dewar, 2011).
3) Would the demand for health care increase or decrease with an improvement in educational attainment in the community?

The improvement of educational attainment in the community will result to a decrease in demand of the health care products (Folland et al, 2007). This is because through improvement of educational standard in a community, there will be a creation of enhanced awareness towards the importance of ensuring health safety in the society.  This can make individuals to be aware of various health safety measures and precaution that can results to low incidences of diseases in the community. Individuals will also be able to acquire the preventive knowledge of various diseases and infections hence results to low demand of heath care. Education can also enable individuals to have knowledge of the consequences of various health risks factors such as drinking, smoking illegal drugs, preventive health care and household care.  This can lead to better healthcare standard of the educated community hence reduces the demand of health care products.
4) Studies using macroeconomic data indicate higher income elasticity for health care. Does that make health care an inferior, normal, or superior good? Explain.

A study that uses macroeconomic data shows high-income elasticity for health care. This suggests that health care is a superior good. For superior goods, the increase in income level of consumers will results to greater increase in quantity demanded than the increase in the percentage income (Dewar, 2011). This implies that the percentage increase in quantity demanded for superior goods will be more than the percentage increase in the income levels of the consumers.  The macro economic data considers the national income of the country and the health care spending. The result is applicable for both industrialized and developing nations.  One major factor that can lead to this result is that health care service is regarded as a public good and the government considered it as important towards improving the welfare of the community.
5) Describe the components of time cost in health care. Is time less costly for patients with higher wage rates? Explain.

Time cost can be defined as the value of time that is used in any given activity. The time cost of consuming a health care product can be determined by two main factors that include the that time that is taken by patient when they are waiting for an appointment and the time that clients take when traveling to the health care institution (Edberg, 2009). Other component of time cost in health care services is the insurance and the wages of patients. Insurance is considered as a time cost component for health care since it determines the health care that patient should seek and which the insurance providers use. Wage is also a time cost component of insurance since it will determines the opportunity cost of the patient as a result of seeking health care service.  Time is more costly for patients with higher wage rates. This is because the patients with higher wage rates will have high opportunity cost of time.


Dewar, D. M. (2011). Essentials of health economics, Jones and Bartlett Publishers

Edberg, M. C. (2009). Essential readings in health behavior: theory and practice. Jones &

Bartlett Learning

Folland, S., Goodman, A. C., & Stano, M. (2007). The economics of health and health care (Vol.

6). Upper Saddle River, NJ: Pearson Prentice Hall.

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