Transcript 5550_l8_2014

Demand
Some Basics
Why demand?
30
Money Price
• We want to look at
what consumers do.
• Demand is related to
total expenditures
• What happens to
total expenditures if
price increases?
• A> It depends on the
elasticity
40
20
Total Exp.
Money price demand
10
Total Exp.
Visits
What determines elasticity?
Back to Indifference Curves
pv
visits
Spam
• What happens to
quantity demanded as
price changes?
• Let’s hold utility
constant.
v3 v2 v1
visits
What determines elasticity?
(2)
pv
visits no change!
Spam
• What happens to
quantity demanded as
price changes?
• Let’s hold utility
constant.
• Why? Discuss
v3
v2
v1
visits
Elastic and inelastic demand
30
Elastic
Money Price
• So, we derive
demand curves.
• Some are MORE
responsive to price
than others.
40
20
10
Inelastic
Visits
Income elasticity
30
Quantity
• What is income
elasticity?
• %ΔQ/%ΔY
• What does this
have to do with
total expenditures?
40
20
10
Inelastic
Income
Demand for Health Care
• General models suffice … BUT
• We want to look at the role of time and
the role of insurance.
• WHY?
• Because often out-of-pocket costs are
the smallest parts of the price of health
care.
Time Costs
Full price demand
60
Money Price
60
80
Full Price
• Suppose a
visit costs $50.
• BUT, parking
and travel
costs $10.
• Visit takes 1
hour @ $15 –
Why?
80
40
40
Money price demand
20
20
Visits
Time Costs
• KEY !!! Must look at
blue line, because it
adds time and $ costs.
Full price demand
60
80
60
Money Price
• Suppose that a clinic
opens up nearby?
What happens?
80
Full Price
• So, which curve is the
one that applies.
• Suppose money costs
fall to 0. What
happens to quantity
demanded?
40
40
Money price demand
20
20
Visits
Insurance
Money Price
60
Effective demand 80
What’s
This?
40
60
Effective Price
• Suppose a
visit costs $60.
• BUT,
insurance pays
50%.
80
40
Money price demand
20
20
Visits
Fundamental Problems with Demand
Estimation for Health Care
• Measuring quantity, price, income.
• Quantity first. It is typically very difficult
to define quantity.
• We usually look at the stuff that is
easiest to measure. Things like visits,
days of service, and the like.
Problems w/ Demand Estimation
• The problem here is that the measures
may not be meaningful.
• 5 days of inpatient care for observation
is obviously not the same as 5 days of
inpatient care for brain surgery.
• We could argue that 5 visits reflects
more treatment than 4 visits, but it could
simply indicate that the first 4 visits were
not effective.
Episodes
• Episodes represent what may be a more
theoretically desirable measure of output in a
number of ways.
• An episode starts when someone starts to
need treatment, and ends when they no
longer need it.
• For example, an episode may include a few
visits to the doctor, some inpatient
hospitalization, and maybe some follow-up
clinic visits.