7 - Principles of Health Economics
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Created by:
adrnwn Plus on October 9, 2011
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53 terms
Terms | Definitions |
|---|---|
 Economics | The study of how individuals & societies allocate their limited resources in attempts to satisfy their unlimited wants |
| Utility | economic term for satisfaction obtained from consumption of a good or service |
| Value | determined by marginal utility |
| Marginal Utility | Satisfaction obtained from receiving one more of a good or service |
| Law of diminishing marginal utility | The satisfaction received by obtaining one more unit of a good declines as one consumes more of it |
| Law of Demand | Quantity demanded of a commodity is inversely proportional to its price |
| Demand schedule | shows various amounts of a commodity that consumers are willing to purchase at a set of possible prices over a specified period of time |
| Price | y-axis |
| Quantity | x-axis |
| Change is quantity demanded | Moves along the demand curve |
| Change in Demand | shifts entire curve |
| Substitutes | price of one good is directly related to the demand for another |
| Complements | price of one good is inversely related to the demand for another |
| Substitutes | beef and chicken, coffee and tea, acetaminophen and ibuprofen |
| Complements | printers and ink cartridges, NSAIDs and proton pump inhibitors |
| Superior (or normal) goods | Demand increases for a good as income rises |
| Inferior goods | Demand decreases for a good as income rises |
| Example of # of consumers in market | Minoxidil for hypertension to Rogaine for hair growth |
| Example of Attitudes of consumer | NyQuil as cold medicine to help with sleep |
| Supply | as the price that individuals are willing to pay for a product increase, more product will be supplied |
| Supply curve (or schedule) | shows quantity of a commodity that sellers are willing to supply at a give price |
| Increases (shifts right) | If # of sellers increase, what happens to supply curve? |
| Example of supply curve shift right | increase in # of generic drug products |
| Substitute products | Products that can be produced with the same or similar inputs |
| Example if substitute products changing supply curve | Increase in reimbursement for generics; decrease in brand name drugs supplied |
| Joint products | Goods that are almost always produced together |
| Example of Joint products changing supply curve | Increase reimbursement for teaching hospitals; increase in amount of medical education |
| Equilibrium Price | The price where demand and supply curves intersect |
| Elasticity | Measure the responsiveness of consumer demands to a change in price |
| Revenue | Price X Quantity |
| Increase or decrease price | How do sellers maximize profit depending on elasticity of demand? |
| Elastic Demand | Increase in price causes the quantity demanded to decrease enough to result in a decrease of overall revenue |
| Inelastic Demand | An increase in price does not result in a sufficient decrease in quantity demanded to prevent a decrease in revenue |
| health care services, Rx drugs | Examples of Inelastic Demand |
| Unitary demand | If total revenue is unchanged regardless of changes in price |
| More substitutes, more elastic | How does availability of substitutes affect elasticity of demand? |
| Larger portion, more elastic | How does price relative to income affect elasticity of demand? |
| Fewer uses, more inelastic | How do # of alternatives affect elasticity of demand? |
| inelastic | What type of elasticity do Rx drugs have? |
| price takers | In Perfect Competition, what are companies (or sellers)? |
| Horizontal | In Perfect Competition, what does the demand curve look like? |
| perfect elasticity | In Perfect Competition, what type of elasticity is the demand curve? |
| Monopolistic competition | Similar to perfect competition, except no standardized and interchangeable products |
| differentiation | What does Monopolistic Competition rely on? |
| Auto industry | Example of Monopolistic Competition |
| Oligopoly | Type of competition with Few sellers and many buyers |
| Price setters | In Oligopoly, what are companies (or sellers)? |
| Breakfast Cereal manufacturers | Example of Oligopoly |
| Monopoly | One seller with no substitutes |
| restrict supply and increase price | Way that Monopolies maximize revenue |
| Monopsony | one buyer |
| Government | Example if Monopsony |
| Capitation | flat fee per patient to provide care |
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