Suppose that you are selling Vitamins. You are currently selling vitamins for $3.50 apiece and you sell 25 boxes of vitamins per day. You know that the elasticity of demand for vitamins at your current price is -.6. Is your price too high or too low? Explain. If the income elasticity of demand is estimated at 0.613, do people consider vitamins a normal or inferior good, a necessity, or a luxury?
Total revenues are the full amount of total sales of goods and services. Raising the price in the elastic market decreases the total revenue. In turn, increasing the prices in inelastic markets increases the total revenues. The Total Revenue (TR) formula is TR = P * Q. Therefore, TR = 3.50*25=87.50. The total revenue is $87.50 per day, which leads to the elasticity of demand is -6. If the demand elasticity is greater than 1, this means it is elastic, and when less than 1, it is inelastic (Gerfin, 2019). Thus, in this case, raising the price decreases the total revenue. Price elasticity of demand = proportionate change in quantity/proportionate change in price. In this case, the demand elasticity is -6, which shows a decrease in demand for the vitamins, and the prices are high.
If the demand coefficient’s income elasticity is equal to zero, it shows that it is perfectly inelastic, and the demand for a good does not change in response to price. In this case, if the income elasticity of demand is estimated at 0.613, it is inelastic, and people consider vitamins as inferior goods.
Every economy, as well as the medical care sector, must decide the following: What should be produced, how it should be produced, how it should be distributed, and how to allow for growth and innovation.
With respect to the medical care sector, how are these choices currently made? How have they changed over time? What are the assumptions and value judgments underlying each of these choices?
Compare the US system to the UAE system.
The medical sector focuses on what should be produced where the choice involves the products’ efficiency. In this case, the products should be effective and meet customer demands. Moreover, failure to meet the needs of people can lead to wastage of resources. The assumption of the scarcity of the product is also considered when focusing on what should be produced. Suppliers, sellers, consumers, and payers are the parties in the market, and they make choices of what should be made.
The choices are currently made by focusing on the customers’ needs and ensuring that their efficiency is achieved. Health economics defines efficiency as maximizing the production of goods or services while minimizing the resources required for production (Olsen, 2017). Distribution is exercised by first analyzing people’s needs and how they access the resources needed to improve and maintain health outcomes (Malakoane et al., 2020). Researching the need for resources in a particular area also limits the failure to avoid or overcome inequalities that infringe on fairness and human rights norms.
The choices have changed over time since people have been educated about health economics and the need for equality. Policies have also been implemented to ensure that all individuals can access health care services and products with ease. Many people have benefited from these choices as they have enhanced healthcare facilities’ performance. One assumption about markets is that resources are limited at best and often are relatively scarce. The assumption of resource scarcity is also made, where the choices entail limiting the scarcity by allocating more resources.
What is produced in the US and UAE is based on what customers want to avoid surplus or scarcity of the resources? The UAE’s health care system has primarily depended on government funding and how to produce of medical products is based on technology and capital (Al-Neyadi et al., 2018). The US mostly focuses on technology to ensure improved products are manufactured. Technology in the US enables healthcare professionals to design effective products. For whom the products are manufactured is analyzed, whereby healthcare products are produced for all people in both countries. UAE and the US have ensured that discrimination is curbed and all people can access affordable medical care (DeSalvo & Gracia, 2020). Therefore, access to medical care is not limited to some individuals.
Assume that the price of registered nurses was subsidized (Hospitals pay a lower wage to registered nurses). Trace the effect of such a policy in all the medical markets, and evaluate this policy in terms of its effect on the goal of increasing the level of the population’s health (Consider in your answers the effect on the demand curve for registered nurses, effect on the demand for substitutes of registered nurses, effect on hospital demand and the demand for nursing education..).
Second, evaluate this policy in terms of economic efficiency. Is it more efficient to subsidize registered nurses only or the hospital in general?
Finally, evaluate this policy in terms of who benefits and who bears the cost?
The policy to subsidize the price of registered nurses can impact medical markets. In addition, as income decreases, the quantity demanded decreases. Thus, the policy can have an impact on the demand curve of registered nurses. Many health facilities would require the registered nurse’s services since the policy can lead to a decrease in the number of registered nurses. Subsidy impact has also been analyzed in health economics to determine how different aspects can influence the demand curve. In this case, the demand curve for labor can be shifted by changes in labor productivity, the relative price of labor, or the price of the output.
The policy can also impact the effect on the demand for substitutes for registered nurses. Typically, when the price of a substitute increases, the quantity demanded increases as well. Therefore, the quantity demand for registered nurses’ substitutes will decrease since the registered nurses will be lower. Moreover, many organizations focus on minimizing expenditure while maximizing the output (Olsen, 2017). Thus, subsiding the prices of registered nurses will lead to many facilities hiring more registered nurses.
The policy can also have an impact on hospital demand and demand for nursing education. For instance, many hospitals can ensure that they hire more registered nurses to provide hospital care since their wages are lowered. The demand for nursing education can also decrease as many people would not apply for the course due to the lowered wages. It is more efficient to subsidize the hospital, in general, to ensure equality is achieved and no group of workers feels oppressed. The policy benefits the hospitals since their expenses are limited, and the registered nurses bear the cost as their wages are decreased.
Typically, economic efficiency assumes the minimum cost for the production of a good or service, maximum output, and minimum surplus from the market’s operation. Thus, subsidizing the prices should ensure that the output is examined. Additionally, it is more efficient to subsidize the hospital, in general, to achieve equality. In this case, subsidizing the registered nurses benefits the hospitals since it limits their expenses. However, the registered nurses bear the policy’s cost since their earnings are lowered and there are no changes to limit their workload.
How can a model of demand for hospital care be used to explain changes in hospital utilization over time? (In answering this question using the determinants of demand for hospital care changes and the effect of elasticity on hospital utilization).
The demand for products or services can influence their utilization in hospitals. Sacristy of resources is another aspect that can affect the changes in hospital utilization. In most cases, a shortage of resources forces hospitals to seek substitutes. Thus, the demand model is vital since it helps hospitals learn about the scarce resources and their distribution in the market. Moreover, the model allows hospitals to learn how demand varies with price. Consequently, hospitals can learn about the changes and their effects of elasticity on hospital utilization. Demand shifters influencing the health care labor market can also be analyzed in the model to explain hospital utilization changes.
References
Al-Neyadi, H. S., Abdallah, S., & Malik, M. (2018). Measuring patient’s satisfaction of healthcare services in the UAE hospitals: Using SERVQUAL. International Journal of Healthcare Management, 11(2), 96−105. Web.
DeSalvo, K. B., & Gracia, J. N. (2020). Health is more than health care.Annals of internal medicine, 172(2), 66-67.
Gerfin, M. (2019). Health insurance and the demand for healthcare. In Oxford research encyclopedia of economics and finance. Web.
Malakoane, B., Heunis, J. C., Chikobvu, P., Kigozi, N. G., & Kruger, W. H. (2020). Public health system challenges in the Free State, South Africa: A situation appraisal to inform health system strengthening.BMC Health Services Research, 20(1), 58. Web.
Olsen, J. A. (2017). Principles in health economics and policy. Oxford University Press.