Key Concepts in Microeconomics

Study Notes

Scarcity & Choice: Limited availability of resources forces individuals to prioritize economic decisions.
Opportunity Cost: Represents the value of the next best alternative forgone when making a choice, highlighting the trade-off in decision-making.
Marginal Analysis: Evaluates additional costs and benefits of incremental decision changes, focusing on marginal impacts rather than total outcomes.
Self-Interest: Individuals driven by self-interest strive for efficiency in both production and consumption processes.
Markets & Pricing: Utilize the pricing system, known as the invisible hand, to allocate resources effectively based on supply and demand interactions.
Supply & Demand: Establishes equilibrium between consumer willingness to pay and supplier offerings, aiding in the efficient distribution of goods and services.
Competition: Incentivizes resource owners to optimize their resources, enhancing satisfaction for consumers, producers, and investors by promoting efficiency.
Efficiency: Measures how well resource allocation contributes to overall social welfare in economic contexts.
Market Failure: Occurs when free markets fail to allocate resources optimally, resulting in either excess or insufficient output.
Comparative Advantage: Highlights the benefits of voluntary exchange based on opportunity costs, where the entity with the lowest opportunity cost holds the comparative advantage.

Managed Care Dominance: In the 1990s, managed care became the primary insurance model, pushing providers to consider costs more critically.
Public Insurance Shift: Transition from private insurance to public funding, with Medicare and Medicaid causing government spending to rise to nearly 40% within ten years of their introduction.
Prospective Payment System: Introduced in 1983, changing hospital billing from cost-plus pricing to a system based on diagnoses under Medicare regulations.
Third-Party Payment Rise: Shifted the healthcare payment landscape from out-of-pocket expenses to reliant on private and public insurance options since the 1960s.

Advancements in Technology: Significant increases in healthcare spending largely driven by innovations in medical technology, leading to the use of more expensive services.
Specialist Services: Higher costs attributed to specialist consultations, which often involve expensive treatments and diagnostic procedures.
Overall Spending Surge: Approximately half of the increase in healthcare expenditure is linked to new technologies and their applications in treatment and care.