Supply and Demand Analysis in Healthcare - Economics Textbook PDF

CHAPTER SUPPLY AND DEMAND ANALYSIS 10 Learning Objectives...

CHAPTER SUPPLY AND DEMAND ANALYSIS 10 Learning Objectives After reading this chapter, students will be able to define demand and supply curves, interpret demand and supply curves, use demand and supply analysis to make simple forecasts, and identify factors that shift demand and supply curves. Key Concepts A supply curve describes how much producers are willing to sell at different prices. A demand curve describes how much consumers are willing to buy at different prices. At the equilibrium price, producers want to sell the amount that consumers want to buy. Markets generally move toward equilibrium outcomes. Expansion of insurance usually makes the equilibrium price and quantity rise. Regulation and technology influence the supply of medical goods and services. Copyright © 2023. Health Administration Press. All rights reserved. Demand and supply curves shift when a factor other than the product price changes. 10.1 Introduction Markets are in a constant state of flux. Prices rise and fall. Volumes rise and fall. New products succeed at first and then fall by the wayside. Familiar products falter and revive. Economics teaches us that underneath the seem- ingly random fluctuations of healthcare markets, systematic patterns can be detected. Understanding these patterns requires an understanding of supply 165 CH10.indd Lee, 165Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  166 Ec o n o m ic s fo r H e a l th c a re M a n a g e r s and demand. Even though healthcare managers need to focus on the details of day-to-day operations, they also need an appreciation of the overview that supply and demand analysis can give them. The basics of supply and demand illustrate the usefulness of econom- ics. Even with little data, managers can forecast the effects of changes in policy or demographics using a supply and demand analysis. For example, the impact of added taxes on hospitals’ prices, the impact of increased insurance coverage on the output mix of physicians, and the impact of higher electricity prices on pharmacies’ prices can be analyzed. Supply and demand analysis is a powerful tool that managers can use to make broad strategic decisions or detailed pricing decisions. 10.1.1 Supply Curves Exhibit 10.1 is a basic supply and demand diagram. The vertical axis shows the price of the good or service. In this simple case, the price sellers receive supply curve is the same price buyers pay. (Insurance and taxes complicate matters, because A graph that the price the buyer pays is different from the price the seller receives.) The depicts how much horizontal axis shows the quantity customers bought and producers sold. producers are willing to sell at The supply curve (labeled S) describes how much producers are will- different prices. ing to sell at different prices. From another perspective, it describes what the EXHIBIT 10.1 Equilibrium Price D Copyright © 2023. Health Administration Press. All rights reserved. S P1 Quantity Q 1 CH10.indd Lee, 166Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  C h ap ter 10 : Sup p ly and D em and A naly sis 167 price must be to induce producers to be willing to sell different quantities. The supply curve in exhibit 10.1 slopes upward, as do most supply curves. This upward slope means that, when the price is higher, producers are will- ing to sell more of a good or service or more producers are willing to sell a good or service. When the price is higher, producers are more willing to add workers, equipment, and other resources to sell more. In addition, higher prices allow firms to enter a market they could not enter at lower prices. When prices are low, only the most efficient firms can profitably participate in a market. When prices are higher, firms with higher costs can also earn acceptable profits. 10.1.2 Demand Curves The demand curve (labeled D) describes how much consumers are willing to buy at different prices. From another perspective, it describes how much the marginal consumer (the one who would not make a purchase at a higher price) is willing to pay at different levels of output. The demand curve in exhibit 10.1 slopes downward, meaning that for producers to sell more of a product, its price must be cut. Such a sales increase might be the result of an increase in the share of the population that buys a good or service, an increase in consumption per purchaser, or some mix of the two. 10.1.3 Equilibrium The demand and supply curves intersect at the equilibrium price and quan- tity. At the equilibrium price, the amount producers want to sell equals the equilibrium price amount consumers want to buy. In exhibit 10.1, consumers want to buy 60 The price at which the quantity units and producers want to sell 60 units when the price is $100. demanded equals Markets tend to move toward equilibrium points. If the price is above the quantity the equilibrium price, producers’ sales forecasts will not be met. Sometimes supplied. (There producers cut prices to sell more. Sometimes producers cut production. is no shortage or surplus.) Either strategy tends to equate supply and demand. Alternatively, if the price is below the equilibrium price, consumers will quickly buy up the available Copyright © 2023. Health Administration Press. All rights reserved. stock. To meet this shortage, producers may raise prices or produce more. shortage Either strategy tends to equate supply and demand. A situation that occurs when Markets will not always be in equilibrium, especially if conditions the quantity change quickly, but the incentive to move toward equilibrium is strong. Pro- demanded at ducers typically can change prices faster than they can increase or decrease the prevailing price exceeds production. A high price today does not mean a high price tomorrow. Prices the quantity are likely to fall as additional capacity becomes available. Likewise, a low supplied. (The price today does not mean a low price tomorrow. Prices are likely to rise as best indication of capacity decreases. We will explore this concept in more detail in our exami- a shortage is that prices are rising.) nation of the effects of changes in insurance on the incomes of primary care physicians. CH10.indd Lee, 167Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  168 Ec o n o m ic s fo r H e a l th c a re M a n a g e r s 10.1.4 Professional Advice and Imperfect Competition Two notes of caution are warranted. Healthcare markets are complex. The influence of professional advice on consumer choices is a complication of par- ticular concern. The assumption that changes in supply will not affect con- sumers’ choices (i.e., demand) can be misleading. If changes in factors that ought not to affect consumers’ choices (such as providers’ financial arrange- ments with insurers) influence providers’ recommendations, a supply and demand analysis that does not take this effect into account could be equally misleading. Even more important, few healthcare markets fit the model of a competitive market (i.e., a market with many competitors who perceive they have little influence on the market price). We must condition any analysis on the judgment that healthcare markets are competitive enough that conven- tional supply curves are useful guides. In markets that are not competitive enough, producers’ responses to changes in market conditions are likely to be more complex than supply curves suggest. This text focuses on applica- tions of demand and supply analysis in which neither providers’ influence on demand nor imperfect competition is likely to be a problem. 10.2 Demand and Supply Shifts A movement along a demand curve is called a change in the quantity demanded. In other words, a movement along a demand curve traces the link between the price consumers are willing to pay and the quantity they demand. Demand and supply analysis is most useful to healthcare manag- ers, however, in understanding how the equilibrium price and quantity will change in response to shifts in demand or supply. This application helps man- agers the most. With limited information, a working manager can sketch the impact of a change in policy on the markets of most concern. What factors might cause the demand curve to shift to the right (greater demand at every price or higher prices for every quantity)? We need Copyright © 2023. Health Administration Press. All rights reserved. detailed empirical work to verify the responses of demand to market condi- tions, but the standard list of responses is short. Typically, a shift to the right results from an increase in income, an increase in the price of a substitute (a good or service used instead of the product in question), a decrease in the price of a complement (a good or service used along with the product in question), or a change in tastes. Economists often use mathematical notation to describe demand. Q = D(P,Y) is an example of this notation. It says that the quantity demanded varies with prices (represented by P) and income (represented by Y), which means that quantity, the relevant prices, and income are systematically related. A demand curve traces this relationship when income and all prices other than the price of the product itself do not change. CH10.indd Lee, 168Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  C h ap ter 10 : Sup p ly and D em and A naly sis 169 What factors might cause the supply curve to shift to the right (greater supply at every price or lower prices at every quantity)? Typically, a shift to the right results from a reduction in the price of an input, an improvement in technology, or an easing of regulations. In mathematical notation, we can describe supply as Q = S(P,W). Here, W represents the prices of inputs (fac- tors such as such as labor, land, equipment, buildings, and supplies that a business uses to produce its product). Unless technology or regulations are the focus of an analysis, we do not make their role explicit. Case 10.1 Worrying About Demand Shifts More than 12 million Americans rely on long-term services and supports in home, community, or institutional settings. This number may more than double by 2050 (Favreault and Johnson 2021). Only a small share of these people get services in nursing homes, and the trend is toward lower rates of nurs- ing home care. Pillemer and colleagues (2020) note that multiple factors influence how and where Americans get these services. First, Medicaid is a major funder of long-term services and supports, so any changes in Medicaid policy can have major effects. Second, rates of disability have been Price EXHIBIT 10.2 The Demand and Supply of Nursing Home Copyright © 2023. Health Administration Press. All rights reserved. D S Care P1 Quantity Q1 (continued) CH10.indd Lee, 169Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  170 Ec o n o m ic s fo r H e a l th c a re M a n a g e r s Case 10.1 trending down for a number of years, but there (continued) is no guarantee that this will continue. Third, use of long-term services and supports varies widely among major ethnic groups, so changes in the composition of the population might have major effects on demand. Fourth, as Americans live longer, the ability of family members to provide informal care may change. Technology represents a wild card in efforts to predict the volume and nature of long-term services and supports. For example, the devel- opment of smart homes and devices might well increase the share of the population getting these services in their homes. Discussion Questions What sorts of policy changes seem likely to shift the demand for nursing home care? How would exhibit 10.2 change given the scenario you outline? What sorts of demographic changes seem likely to shift the demand for nursing home care? How would exhibit 10.2 change given the scenario you outline? What sorts of technology changes seem likely to shift the demand for nursing home care? How would exhibit 10.2 change given the scenario you outline? What sorts of health changes seem likely to shift the demand for nursing home care? How would exhibit 10.2 change given the scenario you outline? Copyright © 2023. Health Administration Press. All rights reserved. 10.2.1 A Shift in Demand We begin our demand and supply analyses by looking at a classic problem in health economics: what will happen to the equilibrium price and quantity of a product used by consumers if insurance expands? Insurance expands when the insurance plan agrees to pay a larger share of the bill or the proportion shift in demand of the population with insurance increases. This sort of change in insurance A shift that causes a shift in demand (or demand shift). As shown in exhibit 10.3, the occurs when entire demand curve rotates. As a result of this insurance expansion, the a factor other than the price equilibrium price rises from P1 to P2 and the equilibrium quantity rises from of the product Q1 to Q2. For example, as coverage for pharmaceuticals has become a part of (e.g., consumer more Americans’ insurance, the prices and sales of prescription pharmaceu- incomes) changes. ticals have risen. CH10.indd Lee, 170Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  C h ap ter 10 : Sup p ly and D em and A naly sis 171 EXHIBIT 10.3 An Expansion of Insurance Price D1 S P2 D2 P1 D1 Quantity Q Q1 Q2 10.2.2 A Shift in Supply Exhibit 10.4 depicts a shift in supply. The supply curve has contracted from shift in supply S1 to S2. This shift means that at every price, producers want to supply a A shift that occurs when a factor smaller volume. Alternatively, it means that to produce each volume, produc- (e.g., an input ers require a higher price. A change in regulations might result in a shift like price) other than the one from S1 to S2. For example, suppose that state regulations mandated the price of the improved care planning and record keeping for nursing homes. Some nurs- product changes. Copyright © 2023. Health Administration Press. All rights reserved. ing homes might close down, but the majority would raise prices for private- pay patients to cover the increased cost of care. The net effect would be an increase in the equilibrium price from P1 to P2 and a reduction in the equilib- rium quantity from Q1 to Q2. A manager should be able to forecast this effect with no information other than the realization that the demand for nursing home care is relatively inelastic (meaning that the slope of the demand curve is steep) and that the regulation would shift the supply curve inward. Responses to changing market conditions depend on how much time passes. A change in technology, such as the development of a new surgical technique, initially will have little effect on supply. Over time, however, as more surgeons become familiar with the technique, its impact on supply will CH10.indd Lee, 171Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  172 Ec o n o m ic s fo r H e a l th c a re M a n a g e r s EXHIBIT 10.4 A Shift in Price Supply S2 D1 S1 P2 P1 D1 Quantity Q2 Q1 grow. Short-term supply and demand curves generally look different from long-term supply and demand curves. The more time consumers and pro- ducers have to respond, the more their behavior changes. 10.3 Shortage and Surplus A shortage exists when the quantity demanded at the prevailing price exceeds Copyright © 2023. Health Administration Press. All rights reserved. the quantity supplied. In markets that are free to adjust, the price should rise so that equilibrium is restored. At a higher price, less will be demanded, leav- surplus ing a greater supply. A situation that In some markets, though, prices cannot adjust, often because a public occurs when the or private insurer sets prices too low and consumers demand more than pro- quantity supplied, at the prevailing ducers are willing to supply. Exhibit 10.5 depicts a shortage situation. The price, exceeds equilibrium price is P* and the equilibrium quantity is Q*, but the insurer the quantity has set a price of P2, so consumers demand QD and producers supply QS. demanded. (The Because the price cannot adjust, there is a shortage equal to QD – QS. best indication of a surplus is that A surplus exists when the quantity supplied at the prevailing price prices are falling.) exceeds the quantity demanded. In markets that are free to adjust, the price CH10.indd Lee, 172Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  C h ap ter 10 : Sup p ly and D em and A naly sis 173 EXHIBIT 10.5 Price A Shortage D1 S P* P2 D Q uantity QS QD should fall so that equilibrium is restored. In some markets, prices are free to fall but do so slowly. For example, in the 1990s, many hospitals had unfilled hospital beds because the combination of managed care and new technology reduced the demand for inpatient care. Over time, insurance companies used this excess capacity to secure much lower rates (even though Medicare and Medicaid rates remained unchanged), and enough hospitals closed or down- sized to eliminate the excess capacity. Copyright © 2023. Health Administration Press. All rights reserved. Case 10.2 How Large Will the Shortage of Primary Care Physicians Be? The Affordable Care Act (ACA) has increased the share of the popula- tion with health insurance. Most of those newly insured are young and reasonably healthy. As a result, the ACA primarily affects the demand for primary care services. Many anticipate a shortage of primary care physicians (AAMC 2021). (continued) CH10.indd Lee, 173Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  174 Ec o n o m ic s fo r H e a l th c a re M a n a g e r s Case 10.2 But other observers suggest this concern (continued) is overblown. The production of primary care is changing in ways that shift its supply. One change is the rapid expansion of patient-centered medical homes, which emphasize a greater role for technology, nurses, physician assistants, and nurse practitioners. Another change is the growth of nurse- managed clinics (of which MinuteClinic, discussed in case 7.1, is an example). A third change is a rapid increase in the number of nurse practitioners (Davis 2021). All these innovations reduce the number of physicians needed to provide primary care for a population. Discussion Questions If there were a shortage of primary care physicians, what would happen to their incomes? Set up a model of the demand and supply for primary care physicians. (It should have Salary on the vertical axis and Number of Primary Care Physicians on the horizontal axis.) Assuming that the production of primary care does not change (i.e., the supply curve does not shift), how do you expect the market equilibrium to change? How have the incomes of primary care physicians changed in the last few years? Are these changes consistent with your prediction? (You can get income data from Medscape Physician Compensation Reports.) Do the changes in the incomes of primary care physicians suggest there is a shortage? If retail clinics and patient-centered medical homes continue to expand, how will they affect the market equilibrium? Which curve would shift as a result, demand or supply? Copyright © 2023. Health Administration Press. All rights reserved. Deductibles have been rising quickly in recent years. How would that affect the incomes of primary care physicians? Patient-centered medical homes typically expand the roles of registered nurses. How would this affect the demand for primary care physicians? The ACA increased some payments for primary care. How would this affect the demand for primary care physicians? For advanced practice nurses? CH10.indd Lee, 174Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  C h ap ter 10 : Sup p ly and D em and A naly sis 175 10.4 Analyses of Multiple Markets Demand and supply models can also be helpful in forecasting the effects of shifts in one market on the equilibrium in another. Such forecasts can be made only if the markets are related—that is, the products need to be complements or substitutes. Parente and colleagues (2017) provide an example of this effect. They argue that the ACA’s subsidies for health insurance will shift the demand for registered nurses from D1 to D2 (see exhibit 10.6). As a result, employment will rise from Q1 to Q2 and wages will rise from W1 to W2. EXHIBIT 10.6 Insurance Subsidies Shift Wages Demand for Registered Nurses D1 S W2 D2 W1 D1 Quantity Copyright © 2023. Health Administration Press. All rights reserved. Q1 Q2 10.5 Conclusion Supply and demand analysis can help managers anticipate the effects of changes in policy, technology, or prices. Supply and demand analysis is most valuable as a tool that managers can use to quickly anticipate the effects of shifts in demand or supply curves. Short-term shifts in demand are likely to CH10.indd Lee, 175Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  176 Ec o n o m ic s fo r H e a l th c a re M a n a g e r s result from one of two factors: changes in insurance or shifts in the prices or characteristics of substitutes or complements. Short-term shifts in supply are likely to result from one of three factors: changes in regulations, shifts in the prices or characteristics of inputs, or changes in technology. Make sure you understand the basic shapes of demand and supply curves. Most demand curves slope downward, which means that consumers will buy more if prices are lower. It also means that consumers who are will- ing to purchase a product only at a low price do not place a high value on it. In contrast, most supply curves slope upward, which means that higher prices will motivate producers to sell additional output (or motivate more produc- ers to sell the same output). Exercises 10.1 Physicians’ offices supply some urgent care services (i.e., services patients seek for prompt attention but not for preservation of life or limb). a. Name three other providers of urgent care services. Urgent care centers, health centers, or emergency departments. b. What sort of shift in supply or demand would result in a market equilibrium with higher prices and sales volume? The simplest answer would be a shift out in demand, as a higher equilibrium price and quantity imply that you are moving along the supply curve. Refer to exhibit 10.3. Copyright © 2023. Health Administration Press. All rights reserved. c. What might cause such a shift? An increase in insurance coverage, an increase in population, reduced insurance coverage for emergency department services, or an increase in income. d. What sort of shift in supply or demand would result in a market equilibrium with higher prices but lower sales volume? A shift up in supply could cause this. Refer to exhibit 10.4. CH10.indd Lee, 176Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  C h ap ter 10 : Sup p ly and D em and A naly sis 177 e. What might cause such a shift? Higher wages for workers, other higher input prices, or higher regulatory standards might. 10.2 Suppose the market equilibrium price for immunizations is $40 and the volume is 25,000. a. Identify three providers of immunization services. b. What sort of shift in supply or demand would reduce both prices and sales volume? c. What might cause such a shift? d. What sort of shift in supply or demand would result in a market equilibrium with a price above $40 and a volume below 25,000? e. What might cause such a shift? 10.3 The table reports the number of antihistamine doses sold per month in a small town. Price Demand Supply $10 185 208 $9 187 205 $8 188 202 $7 190 199 $6 191 196 $5 193 193 $4 194 190 Copyright © 2023. Health Administration Press. All rights reserved. $3 196 187 $2 197 184 $1 199 181 a. To sell 196 doses to customers, what will the price need to be? b. For stores to be willing to sell 196 doses, what will the price need to be? c. How many doses will customers want to buy if the price is $2? d. How many doses will suppliers want to sell if the price is $2? e. Is there excess supply or excess demand at $2? f. What is the equilibrium price? How can you tell? CH10.indd Lee, 177Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  178 Ec o n o m ic s fo r H e a l th c a re M a n a g e r s 10.4 The table contains demand and supply data for eyeglasses in a local market. Price Demand Supply $300 7,400 8,320 $290 7,480 8,200 $280 7,520 8,080 $270 7,600 7,960 $260 7,640 7,840 $250 7,720 7,720 $240 7,760 7,600 $230 7,840 7,480 $220 7,880 7,360 a. At $280, how many pairs will consumers want to buy? b. How many pairs will consumers want to buy if the price is $290? c. How many pairs will stores want to sell at $290? d. Is $290 the equilibrium price? e. Is there excess supply or excess demand at $290? f. What is the equilibrium price? How can you tell? 10.5 The exhibit shows a basic demand and supply graph for home care services. Identify the equilibrium price and quantity. Label them P* and Q*. Copyright © 2023. Health Administration Press. All rights reserved. Price D1 S D Q Quantity CH10.indd Lee, 178Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  C h ap ter 10 : Sup p ly and D em and A naly sis 179 a. Retirements drive up the wages of home care workers. How would the graph change? How would P* and Q* change? b. Improved technology lets home care workers monitor use of medications without going to clients’ homes. How would the graph change? How would P* and Q* change? c. The number of people needing home care services increases. How would the graph change? How would P* and Q* change? d. A change in Medicare rules expands coverage for home care services. How would the graph change? How would P* and Q* change? 10.6 The demand function is Q = 600 – P, with P being the price paid by consumers. Put a list of prices ranging from $400 to $0 in a column labeled P. (Refer to the completed table below and use intervals of $50.) a. Consumers have insurance with 40 percent coinsurance. For each price, calculate the amount that consumers pay. (Put this figure in a column labeled PNet.) b. Calculate the quantity demanded when there is insurance. (Put this figure in a column labeled D.) c. Plot the demand curve by hand, putting P (not PNet) on the vertical axis. d. The quantity supplied equals 2 × P. Put these values in a column labeled S. e. What is the equilibrium price? It is $250, as S = D = 500. f. How much do consumers spend? Copyright © 2023. Health Administration Press. All rights reserved. Consumers spend $50,000 = $100 × 500. g. How much does the insurer spend? The insurer spends $75,000 = ($250 – $100) × 500. CH10.indd Lee, 179Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  180 Ec o n o m ic s fo r H e a l th c a re M a n a g e r s P PNet D S $400 $160 400 800 $350 $140 460 700 $300 $120 480 600 $250 $100 500 500 $200 $80 520 400 $150 $60 540 300 $100 $40 560 200 $50 $20 580 100 $0 $0 600 0 10.7 The demand function is Q = 1,000 − (0.5 × P). P is the price paid by consumers. Uninsured consumers pay the list price. Insured consumers pay PNet, which is 20 percent of the list price. Calculate the quantity demanded when there is no insurance. (Put these values in column DU of the table below.) The table calculates DU, PNet, and DI for a list price of $880. It also uses the supply function in the next question to estimate the quantity supplied at this list price. List Price DU PNet DI S $1,000 $960 $920 $880 560 $176 912 952 Copyright © 2023. Health Administration Press. All rights reserved. $840 $800 $760 $720 $680 $640 $600 $560 CH10.indd Lee, 180Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  C h ap ter 10 : Sup p ly and D em and A naly sis 181 a. The state mandates coverage with 20 percent coinsurance, meaning that the demand function becomes 1,000 − (0.5 × 0.2 × P). b. For each price, calculate what insured consumers pay. (Put this in column PNet.) c. Calculate the quantity demanded with insurance. (Put this in column DI.) d. Plot the two demand curves by hand, putting P (not PNet) on the vertical axis. e. How do DU and DI differ? Which is more elastic? 10.8 The supply function for the product in exercise 10.7 is 160 + (0.9 × P). P is the price received by the seller. At the equilibrium price, the quantity demanded will equal the quantity supplied. a. What was the equilibrium price before coverage? After? b. After coverage begins, how much will the product cost insurers? c. How much will the product cost patients? d. How much did patients pay for the product before coverage started? 10.9 Consumers who can buy health insurance through their employer get a tax subsidy. a. How does this subsidy work? b. Use demand and supply analysis to assess how it affects subsidized consumers. c. How does it affect consumers who cannot buy insurance through an employer? d. Is the subsidy fair? 10.10 Why are price controls unlikely to make consumers better off if a market is reasonably competitive? Copyright © 2023. Health Administration Press. All rights reserved. 10.11 Make the business case that healthcare providers should advocate for expansion of insurance coverage for the poor. 10.12 Which of the following events would shift the supply of vaccines? Demand? a. Approval of a second vaccine for children. b. Allowing pharmacists to administer a vaccine without a prescription. c. Ending a subsidy for the vaccine. d. Requiring vaccination for entry into elementary school. e. Development of a vaccine that does not require refrigeration. CH10.indd Lee, 181Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H.. 02/12/22 2:30 PM http://ebookcentral.proquest.com/lib/ucf/detail.action?docID=7179271. Created from ucf on 2025-02-10 22:41:03.  182 Ec o n o m ic s fo r H e a l th c a re M a n a g e r s f. Development of a nasal vaccine, meaning that no shot is required. g. Ending a vaccination requirement for nurses. 10.13 During the pandemic were there any examples of shortages? Of surpluses? References American Association of Medical Colleges (AAMC). 2021. “AAMC Report Rein- forces Mounting Physician Shortage.” Published June 11. www.aamc.org/ news-insights/press-releases/aamc-report-reinforces-mounting-physician- shortage#:~:text=According%20to%20new%20data%20published,both%20 primary%20and%20specialty%20care. Davis, C. 2021. “How Nurse Practitioners Are Changing American Health- care.” HealthLeaders. Published August 16. www.healthleadersmedia.com/ nursing/how-nurse-practitioners-are-changing-american-healthcare. Favreault, M. M., and R. W. Johnson. 2021. “Projections of Risk of Needing Long- Term Services and Supports at Ages 65 and Older.” Prepared for the Office of Behavioral Health, Disability, and Aging Policy and Office of the Assistant Secretary for Planning and Evaluation, US Department of Health and Human Services. Published January. https://aspe.hhs.gov/sites/default/files/pri- vate/pdf/265136/LTSSRisk.pdf. Parente, S. T., R. Feldman, J. Spetz, B. Dowd, and E. E. Baggett. 2017. “Wage Growth for the Health Care Workforce: Projecting the Affordable Care Act Impact.” Health Services Research 52 (2): 741–62. Pillemer, K., S. J. Czaja, and M. C. Reid. 2020. “Caring for Chronically Ill Older Adults: A View over the Last 75 Years.” Journals of Gerontology: Series B 75 (10): 2165–69. Copyright © 2023. Health Administration Press. All rights reserved. CH10.indd Lee, 182Economics for Healthcare Managers, Fifth Edition, Health Administration Press, 2023. ProQuest Ebook Central, Robert H..