ECONOMIC TOOLS AND CONCEPTS

Economic Tools and Concepts (Healthcare Industry)

Economic Tools and Concepts

Economics

Trying to describe what is the present state of methodology in economics is a lot like trying to summarize modern culture. Whatever statements are made are going to be overgeneralizations with respect to differing groups. The methodology of undergraduate economics and that of professional economists is very different. The undergraduate will often learn about economic theory using graphs and some math, and even a little econometrics may be thrown in. This type of methodology was the prevailing form done by professional economists perhaps 30 years ago, but it is vastly different from what is done by professional economists today (Ariely, 2008).

Supply and demand

Supply

Supply is defined to be the amount of a product sellers are both willing and able to provide to the market at all prices. Key to this definition is that sellers have to be both willing and able to provide the product to the market. A seller who is willing to sell the product but unable to do so is not considered to be part of supply because he or she will not actually provide the product to the market. Likewise, sellers who are able but unwilling are also not considered to be part of market supply. Quantity supplied is defined to be the amount of a product that sellers are both willing and able to provide to the market at a specific price. The difference in these two concepts is similar to the difference between demand and quantity demanded. That is, supply refers to the entire supply relationship, while quantity supplied refers to a single price and quantity combination. Once these two concepts are understood, it becomes possible to state the law of supply. According to the law of supply, as price increases, sellers increase the quantity that they are willing and able to provide to the market. If price decreases, sellers decrease the quantity that they are willing and able to provide to the market (Beinhocker, 2006).

Demand

One of the most basic concepts in economics is the law of demand. The law of demand is simply an observation of a consumer's general response to changes in a product's price. As price decreases, consumers tend to be willing and able to purchase more of a product, and as price increases, consumers tend to be willing and able to purchase less of a product (Ariely, 2008).

Present Economic Scenario in Healthcare Industry

In health economics, experimental laboratory conditions rarely can be created. Therefore, once a hypothesis has been formulated and sample data have been gathered, statistical techniques must be used to isolate and estimate the effects of particular factors. Economists most commonly “remove” the other effects by using the techniques of multivariate correlation and regression analysis. Whenever possible, researchers use “difference-in-difference” estimators, where changes in a control group are compared with changes in a treatment group (Cutler, 2001).

In isolating the effect of a change in policy or environment, one needs to have a control group to ...