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Medicare: Supply and Demand

Medicare: Supply and Demand


In order to analyze healthcare as a commodity, it is important to analyze its demand. When considering healthcare demand it is vital to acknowledge that it is dissimilar consumable from other goods. Want is generated as one perceives pleasure in a good which is not the case with healthcare. Therefore, the demand is generated due to a need, not a want. However, even if the healthcare is perceived unpleasant it does lead to enjoyable life. As healthcare is required to improve health, the demand is for improvement in health. Therefore, health is a commodity which is vital for the well being of a society. Health does have some similar characteristics like other goods have, for example, it is manufactured, and people are willing to pay for it and so on, but, there few distinct characteristics to health. Healthcare demand in not one to one, as health is affected by many other aspects of society. Health is non-tradable and cannot be transferred from one person to another (David 2009, web).

The concept of effective demand is different to demand. Effected demand is backed by the ability to pay for it. Effective demand affects the allocation of goods in the market not a want. In a contest, of health care, it is not "want", or "effective demand" but the "need" which drives healthcare market (Schoen et al,2007).

The Demand For or Supply of Health Care: Average vs. Marginal Concept

A marginal cost is the change in total cost that results when the quantity produced changes by a single unit. It represents the cost of producing additional item of a good.

Average cost is the total cost per total quantity. For example, if a hospital is operating with three machines, and total cost of operations is £3 million, and it serves around 100 patients per day than total average cost per patient would be £30,000. Now, if the hospital adds another machine to its operations and now serving 150 patients, total cost would rise, let's say £3.5 million and average cost per patient would become £23,333. Marginal cost is change in total cost per change in total quantity would be equal to £10,000.

Economies of scale relates to long run operations. Economies of scale are achieved, if an added unit of output can be produced for less than the average of all preceding units i.e. if the long run marginal cost is under long run average cost, so the marginal cost is declining (Druss et al,2002).

Economies of Scale and Of Diseconomies of Scale:

There are various ways through which economies of scale are accomplished. These include improved bargaining power for inputs, high fixed costs of production, organizational design, specialization and coordination (David & Brachet 2009).

Economies of Scale: Medical Imaging Diagnostics Consolidations

The commercial diagnostic laboratory and medical industry in the US consists of around 5,100 firms with collective annual revenue of USD 3 billion. Main companies include Alliance Imaging and RadNet in the imaging segment, and Quest Diagnostics and Laboratory Corporation in the medical lab ...
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