Economics

Shift in Demand Curve

Demand curve may shift to the left
Not willing to pay as much
Thus price drops
Due to drop in income

Demand curve may shift to the right

willing to pay more for product
Due to:
Increased population
Increased income
Changes in taste

Demand curve shift to the left

Shift in Supply Curve

If it becomes easier to
produce a product,
supply curve will shift
to right

More farmland
More children for labor
Fertilizer available
Water available
Technology available

Price drops

DETERMINANTS OF DEMAND
PRICE
POPULATION
INCREASE IN POPULATION
= DEMAND INCREASE
DECREASE IN POPULATION
= DEMAND DECREASE
***SOME EXCEPTIONS

PRICES OF RELATED
GOODS
SUBSTITUTE GOODS =
Goods that can be used to
replace the purchase of similar
goods. (Butter &
Margarine)

*An increase in a products

price leads to an increased
demand for the products
substitute goods.

Income Elasticity of Demand

INCOME
INCOME INCREASE
= DEMAND
INCREASE
INCOME DECREASE
= DEMAND
DECREASE

East Java market

***SOME
EXCEPTIONS

Engels Law

The proportion of
household budget
spent on food
decreases as income
increases
Wealthy spend less %
of their wealth on food

Bennetts Law
The ratio of starchy
foods in the diet falls
as income rises
Poor eat more starchy
foods
Grains
Root crops
Wealthy eat more
meat, fruit, vegetables

..DETERMINANTS OF DEMAND
PRICES OF RELATED
GOODS
Complementary Goods
Goods that are commonly
used with other goods.
(Paintbrush & Paint)

*An increase in a products price

leads to an decreased demand
for that products
complementary goods.

PRICES OF RELATED
GOODS
SUBSTITUTE GOODS =
Goods that can be used to
replace the purchase of similar
goods. (Butter &
Margarine)

*An increase in a products

price leads to an increased
demand for the products
substitute goods.

DETERMINANTS OF DEMAND
COUNSUMER EXPECTATIONS
Expectations of increased income = demand
increase
Expectations of decreased income = demand
decrease
Expectations of increased in PRICE = demand
increase in the current period
Expectations of decreased in price = demand
decrease in the current period

DETERMINANTS OF DEMAND
COUNSUMER TASTES AND
PREFERENCES
POPULARITY INCREASE =
DEMAND INCREASE
POPULARITY DECREASE =
DEMAND DECREASE

MARKET SIZE
MARKET SIZE INCREASE =
DEMAND INCREASE
MARKET SIZE DECREASE =
DEMAND DECREASE

Increase In The Demand For Ice Cream

Hot Weather

Tastes & preferences

Demand curve shifts right

Shortage at initial price

D
Disequilibrium
P adjustment
Qs response
Law of S

P to restore equilibrium (sellers respond, Qs

)

New equilibrium: higher P & higher Q

Increase In The Demand For Ice Cream

Price of
Ice-Cream
Cone

1. Hot weather increases

the demand for ice cream . . .

Supply
New equilibrium

$2.50
2.00
2. . . . resulting
in a higher
price . . .

Initial
equilibrium
D
D
7
3. . . . and a higher
quantity sold.

10

Quantity of
Ice-Cream Cones

Factors That Shift The Demand Curve

DETERMINANTS OF SUPPLY

Price
Number of sellers
Cost of Production
Availability of inputs
Taxes
Consumers Price Expectation

Factors That Shift The Supply Curve

Market Shocks

What Happens to Price and Quantity

When Supply or Demand Shifts?

Law of Demand and Supply

When there is shortage , price will increase;
When there is surplus, price will decrease
Qd> Qs , price is high
Qs>Qd, price is low
Qd=Qd, price is constant

Price

Quantity
Demand

Quantity
Supply

Market
Condition

Price
Condition

20

100

20

Shortage

High

35

80

40

Shortage

High

50

60

60

Equilibrium

Constant

65

40

80

Surplus

Low

80

20

100

Surplus

Low

Market Efficiency

The Invisible Hand

guides decision-making
rewards efficient producers and consumers
goods society wants
prices society is willing and able to pay

Markets & Competition

Competition Regulates Markets

buyers and sellers both gain from exchange
prices adjust to encourage trade
markets clear
competition directs goods & services
(resources) to their most highly-valued uses

Markets & Competition

Market Forces & Equilibrium

Price floats to where Qs = Qd and the market clears.
This price facilitates all transactions that can
improve the well-being of market participants.

Goods purchased by those with highest value.

Goods produced by those with lowest opportunity
cost.

The well-being of society is maximized.

HEALTH MARKET

DEMAND AND SUPPLY

OF
HEALTH CARE
Analysis of how the basic theory in
economics maybe applied to health
care

FRAMEWORK OF HEALTH CARE MARKET

1. What health care interventions or treatments
should be available?
2. How should these treatments be provided?
3. Who should receive these treatments?

Determinants of Demand
1. PRICE
Standard Economic Theory :
price falls-demand increases
Examples : Dental Check Up,
Food Supplements
Nature of Commodity or
Services :
Demand for health care
may not be well affected by
price
a. A rise in the price of health
care
- constraint of income
-absolute necessity
b. A fall in the price of health
care
- involves disutility

Determinants of Demand
2. INCOME :
Standard Economic Theory :
Increase Income shift in
Demand
Normal Goods Necessity Goods
Inferior Goods-Luxury Goods
*The
increase
in
demand
is
proportionately smaller than the
increase in income: Normal Goods*
Normal Goods exhibits positive
relationship
Budget constraint
Largely unaffected
*The
increase
in
demand
is
proportionately larger than the
increase in income-Inferior Goods*

Determinants of Demand
3. PRICES OF OTHER
GOODS
* Demand for different goods are
often interrelated
Substitute Goods : Increase in the
price of good-fall in the quantity
demand of another good
(bariatic surgery: Anatrim)
Factors affecting health : diet,
level of exercise, living
conditions and lifestyle

*Complement : A fall in the price

of one good-increases the
demand for another good
(Medical Check up: Medicines)

Determinants of
Demand
4. TASTES AND LIFESTYLE
a. Lifestyle trends will affect
overall population health
*smoking as acceptable in the 1950s
b.
Expectations
and
tastes
regarding health itself changes
overtime
*New Zealand and Scotland: tooth
extraction in early adulthood and
adult life
c. Changes overtime in tastes for
specific types of healthcare
*Face lift, tummy-tucks and breast
enlargement
Factors affecting tastes and
preferences : convenience, custom
and attitudes

The Supply of
Health Care Services

SUPPLIERS OF HEALTHCARE
HEALTHCARE INSTITUTION
Any
hospital,
convalescent
hospital, health maintenance
organization,
health
clinic,
nursing home, extended care
facility, or other institution
devoted to the care of sick, infirm,
or aged person.

HEALTHCARE
PROFESSIONALS
Are individual who provides
preventive, curative, promotional
or rehabilitative health services in
a systematic way to people,
families or communities.
A health professional may operate
within all branches of health care,
including medicine, surgery, denti
stry, midwifery, pharmacy, psycho
logy, nursing or allied
professional. A health
professional may also be
a public/community health expert
working for the common good of
the society.

HEALTHCARE INSTITUTIONS

The Supply of
Hospital Services

SUPPLY OF HEALTHCARE
Theory of the Firm
Firm - economic unit that produces and sells
goods, such as medical equipment, or services.
Strongly correlated with Market Structure
( pricing mechanism, number of competitors,
profit maximization)

The Market for the Suppliers of

Healthcare
Structure (Number of Firms in the Industry, the
share of the firm in the Market)
Conduct : Behaviour of the Firm (competition
collusion: goals, pricing policies, investment and
marketing strategies)
Performance: Efficiency (private and social point
of view)

STRUCTURE

CONDUCT

Degree of Competition
more competition-more
aggressive (pricing and
quality)

Perfect Competition : Firms do

not have the control over the
price of the product price
takers
Monopoly : Firms control over
the price of the product:
Medicine pharmaceutical
companies patent
Monopolistic CompetitionFirms sell differentiated
products: pharmaceutical
companies whose patents have
expired
Oligopoly: Firms are mutually
dependent: collusion:
hospitals do have tendency

Competitiveness is measured
by observing the number of
firms
Market Concentration

PERFORMANCE
Growth Maximization
Utility Maximization
Maximization of Net
Income per Healthcare
Professional

The Supply of Hospital Services

Different health providers in the Philippines (both
private and government) offer a variety of health services
across the country. Health facilities may range from
preventive, curative and rehabilitative care. Hospitals of
various categories (primary, secondary and tertiary) and
rural health units (RHU) are usually owned and
operated by the government while the private health
facilities (as its name implies) are owned and managed
privately (single corporations/organizations).

The Supply of Hospital Services

Like the supply of health
professionals,
there
are
government policies that affect
the growth of hospitals:
1. License

No hospital whether public

or private will operate
without a license issued by
the Bureau of Licensing
and Regulation of DOH

The Supply of Hospital Services

2. Provision of Technical Standards

As a requirement, they should meet the prescribed

technical standards (i.e. number and type of
personnel, operating and good quality equipment,
etc.)

The Supply of Hospital Services

3. Quality Assurance Standards

Includes technical aspects, interpersonal aspects

and social aspects of quality of health care.

Technical Aspects: Accuracy of diagnosis, efficacy of treatment,

excellence according to professional standards, necessity of care,
appropriateness, continuity of care, consistency

Interpersonal Aspects: Patient satisfaction, acceptability of care, time

spent with the provider, attitudes of provider and treatment, amenities

Social Aspects: Efficiency and Acceptability

Example: International Standards Organization (ISO)

The Supply of Hospital Services

4. Revenues of Hospital

-10% of private hospital beds

should be allotted for charity
patients
-Emergency cases should be
treated by private hospitals
even when they are unable to
pay
bills
(this
provision
prevents private hospitals to
require money deposit from
patient in ER)
-35% of government tax from
the hospitals net income

The Supply of Hospital Services

5. Availability of credit for financing the construction of
private hospitals

Development bank of the Philippines grants loans to

members of the medical profession or to corporations
organized by medical practitioners for establishment
of new or improved existing hospitals and medical
clinic.
Medical care act provides hospitals especially in the
rural areas. On the other hand, special financing are
given to hospitals with bed capacities of 100
especially in areas identified as BED DEFICIENT.
Social security system provides loans for hospitals
development as well.

The Supply of Hospital Services

Little is known about the impact of these policies on

the growth of private hospitals. As a consequence, for

those who cannot afford the hospitals services, the
burden of financing is shifted to the paying patients. On
the other hand, private hospitals have the option to
modify their tax status (35% deduction from net income) by
establishing teaching schools. In this way, they could
take advantage of tax deduction of educational
institutions (i.e. DLSUMC is a teaching hospital).

HEALTHCARE PROFESSIONALS

Factors that affect Supply of Manpower

Health services can be looked at the same way as any

other industry that produce and sell goods and services.

Usually, the activities of production are common and are
interrelated to each other.

Standard Production Activities

INPUTS

PROCESS

People (labor), manpower,

facilities (i.e. hospital beds),
equipment (capital)

Productive technique/
technology and/or method
that may change inputs into
outputs

OUTPUT
End result of production

Factors that affect Supply of Manpower

The relationship that exist between the inputs and
outputs given the characteristics of technology is
called the PRODUCTION FUNCTION (PF) of a firm.

In simpler terms, PF is a combination of various

inputs required to produce various levels of outputs
in an efficient manner. It should be remembered that
the ultimate output of health industry is HEALTH.
For instance, the Department of Health through the
local government, may allocate an array of resources
(INPUTS) among primary, secondary and tertiary health
care services (PRODUCTION PROCESSES) to reduce morbidity
and mortality or increase health days of life (OUTPUTS)
of Filipinos. (This has always been the ultimate target of
the DOH, Health for all Filipinos)

DECENTRALIZATION

Factors that affect Supply of Manpower

DECENTRALIZATION, as mandated by the 1991 Local
Government Code, pertains to the delivery of basic services
and the operation and maintenance of local health facilities
will be devolved to the provinces, cities and municipalities.
Thus, each local government is responsible for a minimum set of
health services and facilities in accordance with established national
policies, guidelines and standards. The devolution of health services
conferred to the local government has several functions like:
Formulation & enforcement of local ordinances Operation & maintenance of local health
related to health nutrition, sanitation and other
health concerns.
Implementation of health programs in
accordance with national policies & standards.
Provision of promotive, preventive, curative
and rehabilitative health programs & services.

facilities (e.g. district and provincial hospitals

under provincial government; rural health units;
health centers and barangay health stations.)
Monitoring and evaluation of the implementation
of various health services.
Provision of funds for health at the local level.

-Source: National Objectives for Health

Philippines 1999-2004

Factors that affect Supply of Manpower

The highly skilled MANPOWER is the most
important input in the supply of health services.
However, unlike other inputs, manpower takes a
long time to produce (long years of study,
licensure examination, years of specialization).
Professionalization may have increased the
numbers of highly trained personnel and
reduced uncertainty about competence, but it is
essentially anti-competitive. Thus, trade-off
between supply and high-quality manpower
should not exist.

Factors that affect Supply of Manpower

There are several factors that make the examination of
productive activities somewhat problematic. Before we
analyze these factors, heres the major findings of the
1990 census which is designed to determine the regional
distribution and place of work of selected health
professionals:
87% of physicians work in the hospitals while the rest work in other
establishments (school, industry, etc.). A large majority work in urban areas (93%)
74% of dentists practice in private hospitals, clinics, laboratories, 10% in public
facilities, 3% in school. 91% work in urban areas.
78% of nurses work in hospitals, clinics and laboratories while the rest in other
workplaces.
75% of midwives work in hospital facilities. In contrast to other health
professionals, they are evenly distributed in the country.
As for the other health providers (medical technologists, sanitary inspectors,
nutritionists, pharmacists, herbolarios and hilots) little is known about their
numbers.

Factors that affect Supply of Manpower

Generally speaking, the supply of manpower has been influenced
by a number factors. These are often influenced by certain
government policies in the country namely:
The Commission on Higher Education (CHED)
-regulate the admission and other curricular requirements of medical,
nursing, dental and other medical schools. These schools are producing a
large group of future health professionals.
Can you find out how many RT schools are there across the country?
Professional Regulation Commission (PRC)
-it is in charge of licensing examinations to practice. There are even
private institutions that set up their own boards to certify their
specialists (i.e. PMA Philippine Medical Association). However a
significant number of health professionals were lost due to
immigration and overseas employment.
If this continues, our country may experience BRAIN-DRAIN and we
would not be surprised to find out that most of the good doctors,
nurses and RRTs practicing abroad are Filipinos.

APPLYING THE THEORY OF SUPPLY TO

HEALTH CARE
1.
2.

3.
4.

5.

Are health care providers

profit maximizers?
Is there a positive relationship
between the price of health
care and the quantity of
health care supplied?
What impact do the costs of
production have on supply of
health care?
How do changes in
technology affect the quantity
of health care supplied?
To what extent is the quantity
of health care supplied
affected by the prices of other
goods?

Are health care providers

profit maximizers?

Benevolence maximize the

welfare of the patients,
regardless of the costs
WORLD OF SCARCITY
Profit maximization
Income and Profit :
determinant for health care
level provision

Is there a positive relationship

between the price of health
care and the quantity of
health care supplied?

1.

Rise in Price Level upward

sloping
2. A fall in price level- upward
sloping

What impact do the costs of

production have on supply
of health care?

How do changes in technology

affect the quantity of health
care supplied?

Cost of Production affects level

of supply
Budget constraint

Technology supply larger and

better quantities of goods and
services
Medical Technology,
Laboratory Faciltiies
Nurses
Physicians

To what extent is the quantity of health care supplied affected

by the prices of other goods?

Directly affected
Health care provider specializing obstetrics procedure may
decide to concentrate more on gynecological procedures

HEALTH MARKET

ISSUES ON MARKET FAILURE IN THE

HEALTH SECTOR
1. Certainty
2. No externalities : spillovers from other peoples
production or consumption of goods that affect
an individual in either a positive or negative
way
3. Perfect Knowledge
4. Consumers to act free of self interested advice
from health care providers
5. Several small suppliers to promote genuine
competition

PERFECT KNOWLEDGE
PATIENT

HEALTH CARE PROVIDERS

Information about the health

status
Information about available
treatments
Information about the
effectiveness of treatment

Medical Knowledge
Knowledge of the Patients
Circumstances
Knowledge of the patients
individual preference

1. Health care providers may not have the information required

to act as a perfect agent
2. Health care providers may exploit the ignorance of consumers
in order to maximize their own utility

NATURE OF HEALTH CARE

DERIVED DEMAND

1. Consumption benefits
2. Investment benefits

SUPPLIER INDUCED
DEMAND

1.
2.
3.
4.
5.

Fee for service

reimbursement
Third party payment
Limited peer review
Infrequent purchase of
health care
Medico-judicial environment

CLINICAL ICEBERG
Inpatients
Outpatients
GP
Individuals with symptoms
taking non-health action
Individuals with
symptoms taking no action

Individuals with no
symptoms

FACTORS AFFECTING ILLNESS BEHAVIOR

The visibility and recognisability of symptoms
The extent to which the symptoms are perceive as serious
The extent to which symptoms disrupt family, work and other
social activities
The frequency and persistence of the appearance of symptoms
The tolerance threshold of those who are exposed to and
evaluate symptoms
The available information, knowledge and cultural
assumptions to evaluate
The needs competing with illness responses
The possible competing interpretations that can be assigned
to the symptoms once they are recognised
The availability of treatment resources
The monetary costs of taking actions

Other factors affecting demand for

health

1. size of population
2. health status of population
3. method of hospital admission
4. cost to patients of consumption
5. supply and availability of health resources and
unmet need
6.clinical uncertainty

CONDITIONS FAVOURING DEMAND

INDUCEMENT
1.
2.
3.
4.
5.

Fee for service reimbursement

Third party payment
Limited peer review
Infrequent purchase of health care
Medico-judicial environment

TRENDS IN THE HEALTH MARKET