Health Economics: Theories, Insights, and Industry Analysis - Assignment Example

If I were elderly and/or sickly, I would choose a traditional unrestricted indemnity plan because it provides a patient with choice and security (Santerre and Neun 110).    

2. Suppose the supply curve of medical services is perfectly inelastic. Analyze the impact of an increase in consumer income on the market price and quantity of medical services. Next, assume the demand for medical services is perfectly inelastic while the supply curve is upward sloping.

 Explain the impact of an increase in input prices on the market price and quantity of medical services.
Explain how lack of information affects the price and quality of a medical good relative to a perfectly competitive situation.

The supply of medical services is perfectly inelastic:

            An increase in consumer income will cause an increase in demand and market price but the quantity supplied will remain unchanged because medical practitioners have no choice in supplying medical services (Santerre and Neun 115).

Impact of an increase in input prices on the market price and quantity of medical services:

            Prices of medical services will increase in response to increased costs of production. This will eventually in an increase in the supply of medical services. Producers always increase supplies when there is a price increment. However, there will be no change in the quantity demanded because consumers have no choice in the consumption of medical services as indicated by a perfectly inelastic demand curve (Santerre and Neun 115).

            In a perfectly competitive situation, lack of information may result in high prices and low quality of a medical good. This is because the price and quality of products are unknown to consumers and producers. Producers may take advantage of consumers by producing low-quality products and charging high prices so as to improve their profit margins.               

3. 1. Explain the difference between the explicit and implicit costs of production. Cite an example of each. Suppose you are to specify a short-run total variable cost function for a nursing home. Explain the variables you would include in the function. What is the expected relationship between a change in each of these variables and short-run total variable costs?

Explicit and Implicit costs:

            Explicit costs are costs incurred in the purchase of inputs of production and have a direct effect on profits. Such costs include utility bills and salaries. On the other hand, implicit costs are defined as the opportunity cost of utilizing units of production excluding cash. A good example is the depreciation of machines.