Demand Elasticity in Health Care

Answer No 1

Elasticity of demand refers to the degree of responsiveness of demand to the change in different factors like price, income and price of substitutes. Price elasticity is the degree of change in quantity demand due to change in price. According to Law of Demand there exists an inverse relationship between price and quantity demand means when the price of commodity increases the quantity of demand decreases. Elasticity makes the people particularly useful for comparing demand responses across, countries, individuals and products. Elasticity of Demand can be measured with the help of the following formula:

Formula

EOD= Proportionate Change in quantity demand = ?Q / ?P * P/Q

Proportionate Change in Price

It can be further explained with the help of following example. The below table shows that at price 5$ the quantity demanded is 4 units and when price decreases to 2$ the quantity demanded increases i.e. 6 units.

Price($)

Quantity Demand(units)

5

4

2

6

Table 1

Now, ?Q =6-4=2

?P=2-5=3

EOD = 2/3*5/6= 0.66*0.83= 0.547

Price elasticity of demand refers the percentage change in demand due to the percentage change in price”. Its value depends upon that how much quantity demand responses to change in price. As in the above example the elasticity of demand is 0.5 which is less than 1. It means that there is less percentage change in quantity demand than the percentage change in price.

Answer 2

Health care can be measured by multiple ways. According to the studies the main variables are to measure health care of a person is that how many times he or she visits physicians and how much he spends to his or her regular medical checkups. This is important to keep in mind when comparing the elasticity estimates across studies. (Feldstein, 1971) conducted one of the earliest researches on the price elasticity of demand for health care. He collected on an individual basis from different hospitals from the period of 1958 to 1967. He estimated price elasticity of demand for health care is 0.5. Generally the price of demand for health care is found low as compare to other price sensitive issues like food and shelter. The benefits of medicines and prevention have large values of price elasticity.

The findings of many studies revealed that demand for medical precautionary measures is more than the other measures. There are various determinants of health status the main are gender, age and financial status. (O'Hara and Kyle Caswell, 2010) in his study reported that men possess good health status than women and children and the young people reported good health than people who are above 65. Health status shows a declining trend with the age. The people who have good financial status possess good health status as compared to those people who have weak financial status. Therefore, health status responds to the price elasticity of demand of health care. A person who has not good health status he responds to health care as inelastic but a person who possess good health status will respond price as ...