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Healthcare Economics - Case Study Example

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Before we discuss the idea of medical care as a derived demand, someone has to define the word of “Derived demand” properly. The word defines a term in economics, as demand for one good or service happens as a result of the demand of another good or service…
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Healthcare Economics Affiliation Healthcare Economics Why is it easier to measure the effects of smoking on individual’s healththan it is to measure the effects of anti-smoking campaigns on health? Be sure to discuss the idea of medical care as derived demand.
Before we discuss the idea of medical care as a derived demand, someone has to define the word of “Derived demand” properly. The word defines a term in economics, as demand for one good or service happens as a result of the demand of another good or service (Mankiw, 2011). The demand for the former results the production of the second. For example, if coal is demanded that leads to a derived demand of mining, as coal must be mined for coal to be consumed. As the demand for coal increases, so does its price and the increase in price leads to a higher demand for the resources involved in mining coal (Baumol & Blinder, 2011).
It is therefore apparent that the answer of the said question applies the same. It is easy to measure of effects of smoking on individuals than to measure the effects of antismoking campaigns on health. You cannot measure the effects of antismoking campaigns on health before measuring the effects of smoking on individuals. Measuring the effects of smoking on individuals is what derived the antismoking campaigns. Knowing the effects of smoking on individuals led to a derived demand of anti-smoking campaigns on Health, once the effects of smoking on individuals is measured then the need of antismoking campaigns arises and that is what positively contributes to health. Therefore, without measuring smoking effects on individuals, it is hardly possible to know even whether there is a need of antismoking campaigns because it is not assured how harmful it is for the individuals.
2. A hospital marketing department in one of the wealthiest zip codes in Rich State determines that for local residents with incomes greater than $250,000 per year, the income elasticity of demand for boutique maternity services is 1.0. Price elasticity of demand is found to be 0.4. Boutique maternity services feature wireless connections, designer decorated private suites and personalized websites for sharing births. Use the idea of income elasticity to explain why, during a recession, when incomes decrease, a revenue maximizing hospital might introduce a high priced, luxury maternity unit targeted at high income families
Through having a price elasticity of less than 1, supply is not so sensitive to prices and based on the high-income target market of individuals with $250,000 per annum. Ideally, a price increase for a luxury maternity unit will still be viable and there is bound to be a sure market for the good. With a decrease in income, the income elasticity of demands is bound to change (Jain & Ohri, 2008). It will be grater than 1 thus implying that demand for a good becomes more sensitive to a change in income. This only happens in an ideal environment but the economy is always sensitive to changes and employers who are profit minded would go for better pay to their employees and cut offs for those who prove to be unprofitable. This ensures that everyone raises their standards and so, rarely does income decrease under recession, but price goes up. According to Bewley (2007), profit maximizing firms are in a better position to understand the importance of maintaining employee salaries during recessions and only doing away with non-profit-performers. This however will not be the case here because; wealthy families will not postpone giving birth because of recession. There is constant supply and high prices will only have them reduce their savings to meet the expenses but will not interfere with their demand for the maternity services (Mankiw, 2011). The decrease in income if any, will only affect the savings.
Baumol, W. & Blinder, A. (2011). Microeconomics: Principles & Policies. Mason, Ohio: South Western, Cengage Learning.
Bewley, T. (2007). Why Wages Don’t Fall During Recession. Cambridge, Mass: Harvard Univ. Press.
Jain, T. & Ohri, V. (2008). Introductory Microeconomics and Macroeconomics. Mason, Ohio: Thomson South-western.
Mankiw, N. (2011). Essentials of Economics. Mason, Ohio: Thomson South-western.
Mankiw, N. (2011). Principles of Economics. Mason, Ohio: Thomson South-western. Read More
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