Discussion chapter 3

Q. In a country, health insurance is nonexistent and all medical markets are perfectly
competitive. Use supply and demand analysis to explain the impact of the following
changes on the price and output of physician services:
A decrease in the wage of clinic-based nurses
In this scenario, lower wages will decrease the cost for operation of clinic, i.e. the price
decreases, leading to an increase in the output of services provided by the physician as
graphically illustrated by a shift in the supply curve to the right.
The adoption of cost-enhancing medical technologies
Here, the medical technology is taken as an input for physicians services. So, the price
that is spared for the medical technologies will decrease, resulting in an increase in the
output of physicians healthcare services as the supply curve on the graph, proceeds to the
right.
An aging population and a correspondingly more severe patient case mix
Here, the demand curve that represents the physicians services moves to the right
because of aging population, but the supply curve moves to the left. Therefore, the price
for the services provided by the physician increase but as far as the quantity is concerned,
it remains unknown.
Declining consumer income
As the income of consumers decline, the services provided by the physician become
unaffordable, so the demand curve lowers back to the left. As an outcome, the price as
well as the output of the services decreases.
A lower market price for physician services
Either the market price for the physicians service is high or low, it is always demanded
by the consumers because no one compromises with health and the services can only be
availed in case an individual is ill. This will not affect the graph and it will remain in
equilibrium.

Q. Using supply and demand

analysis, show graphically and
explain verbally some of the factors
that may have led to rising
healthcare costs in the United States
from 1960 to the present day.
The supply and demand analysis
presents several reasons of explosion of
U.S healthcare expenses from about 5.1
percent, in 1960, to beyond 16 percent
of entire nations earnings, in the most
recent years. Increase in earnings,

population becoming older, increase in prices and need for novel treatments aided in fueling the
costs of healthcare services, when looked upon the side of demand, in the medical care market.
In case of the side of supply of the healthcare market, acquisitions of latest technologies and
increased incomes have also added to increasing costs of medical services. The graphical
representation of these analyses can be seen as a beneficial tool to explain the changes in market
of health care.
Q. Assume the sale of human organs is legalized and a free market develops. Furthermore,
assume the market is in equilibrium. Trace through the price and output effects of the
following:
An increase in the incomes of potential buyers of human kidneys
An increased income would also increase the demand for the human kidneys; this would
lead to deviation of the demand curve to the right, leading to an increase in both, the price
as well as the quantity.
A decrease in the price of dialysis
A decrease in the price of dialysis will lead to an increase in its accessibility to the
patients so they will prefer dialysis upon kidney transplant. Hence, the demand for
kidneys will decrease, i.e. the demand curve will deviate to the left, leading to a
corresponding decrease in the price and the quantity.
The development of a new drug that leaves the immune system intact while
preventing transplant rejection
In case of development of such a drug, more patients will go for transplant that will
increase the demand for the human kidneys ultimately increasing its price and quantity.
A greater willingness by individuals to supply human kidneys
As the suppliers of the kidneys will increase i.e., the supply curve moves to the right,
there would be a decrease in the price but the quantity will surely increase.