Price Elasticity of DemandThe percent change in the quantity demanded/percent change in priceTake the absolute valueArc elasticity (midpoint)[-Change in quantity demanded/.5(quantity demanded original + quantity demanded after change)]/ change in price/.5(change in price original + change in price after)ExampleIf the chart went… (left side price right side quantity demanded)1050203030204010if you want to find the elasticity of demand from 1020-(-20/40)/(10/15)if you want to find it for 2030-(-10/25)/(10/25)if you want it for 3040-(-10/15)/(10/35)D is more elastic if elasticity of demand is greaterDemand is inelastic if Ed is less than 1Demand is unit elastic if Ed is equal to 1Demand is elastic if Ed is greater than 1Perfectly inelasticWhen Ed=0Vertical linePerfectly ElasticEd=infinityHorizontal lineElasticBig effectInelasticNo effectRevenueQuantity x priceIf you raise the price and the quantity falls a lot it is elasticRevenue is linked to elasticityExampleIf we lower the price for kids the number of kids will increase because it is cheaper to raise themTiming of kids is important because its better because you get a tax breakIf we raise tuition by 10% it would be elastic because a lot of people would drop outTwo sides to health care reformGovernment takeover of health careGovernment should be much more involved and that current health care reforms are an insufficient drop in the bucket of the changes neededWhen stakeholders (doctors, hospitals, insurance companies, and government institutions) face different incentives the health care market can failTradeoff is providing the most advanced health care to fewer people or providing basic health care to all peopleDemand for Health CareHas increased over the past 50 years and standards of living have risen and new treatments have been discoveredTwo major government programs funded by taxes are Medicare (provides health care coverage to persons aged 65 and over) and Medicaid (provides coverage to persons with low incomes)Types of Health Care ServicesPreventative care (primary care)Services that do not treat a specific illness, but rather are undertaken to reduce the risk of incurring such illnesses in the futureThings that detect diseases before you actually have themSpecialty care (acute care)Treatments of illnesses and diseases once they have been diagnosedSurgeries, chemotherapy, prescription drugsElective careServices that are not necessarily critical for one’s health but done to improve one’s appearanceEye surgery, plastic surgery, gastric bypassNot covered by insurance policiesWho determines the willingness to pay for health care?Majority of health care expenditures are paid either by third party insurance companies or the governmentPersonal preferences can be a personal factor of whether or not to undergo treatmentIncome and wealth factors are also an important ray because you have to pay a deductible (annual minimum out of pocket expense) and a co-payment (fixed fee or percentage of the billed amount per service)Doctors push the demand curve to the right by suggesting they get surgeries because it benefits their incentives and that increases the equilibrium price and quantitySocioeconomic factors affecting health care demandIncome, religion, obesity, risky activities, and crime ratesSupply of Health CarePhysicians and nurses who prescribe and perform the treatmentsPharmaceutical and medical device industries that produce treatmentsInsurance and government programs that pay a significant potion of the costsProviders of Health Care CoverageProvided mostly by employers and by the governmentFor those self-employed, part-time, and unemployed workers have a lot of other optionsPrivate health care plans include indemnity plans (allow patients to use any doctor of their choice) and self insurance plans (large firms or communities pool their resources to insure their own members without needing to use a third-party insurance company)Public health care plans are aimed at seniors over 65, low income families, and militaryHealth Care Labor MarketNursing has been a growing occupancy since the labor market for physicians has gotten tighter because of admission standards and curriculumHealth Care for ProfitAllowing health care providers to operate a profit-maximizing environment provides incentives for providers to seek out less costly patient while avoiding high cost patients, known as cream skimmingUse surveys to find out the unprofitable customersRole and Cost of Health Care TechnologyFinding cheaper ways to cure common health issues reduces the cost of delivering health care as the supply of health care increasesFinding treatments to improve the probability of curing rarer diseases increases the cost of health careMedical Malpractice Insurance and RegulationsVery costlyImproving EfficiencyInefficiencies from waste and fraud add to the cost of delivering health care services shifting supply to the leftDefining Health Care SystemsTradeoff between quality and quantity of careSingle-payer systemsGreatest government controlGovernment acts as the primary insurance provider to set prices that doctors must acceptTwo-tier systemsProvide features of both public and private health care optionsManaged CompetitionLeast government controlCompetition is regulatedThe US Health Care Reform DebateNearly 50 million Americans go without health insuranceThe costs of health care in total and per capita are expected to rise even faster as the population grows and ageHow to increase the number of people insuredHow to deal with the costs of insuring persons with preexisting conditionsHow to deal with rescission, a practice of health care insurance in which they drop a person’s coverage after an illness arisesWhether to allow lifetime limits on coverageHow to ensure that the choice of doctors is maintainedWhether to reform malpractice and tort lawsHow to increase competition among providers and implement person patient responsibilityHow to contain the growth of health care costsElasticityThe responsiveness of one variable to changes in anotherKnowing price elasticity allows us to predict the amount by which quantity demanded will drop in response to a price increaseElasticity of DemandEd is a measure of how responsive quantity demanded is to a change in pricePrice elasticity of Demand as an Absolute ValueAlways negative which reflects that fact that the demand curves slope is negativeUse absolute value for itTells us that for every