Type: Economics
Pages: 5 | Words: 1208
Reading Time: 6 Minutes

Economic tools are elements that are used in the day to day activities of running the economy. A theory by Mosby medical encyclopedia defines Health Economy as “the study of supply and demand of health care resources and the impact of health care resources on a population”. Transformation of the healthcare industry is one of the commonly discussed issues in any society today. Healthcare sector comprises one-sixth of the economy in the U.S in terms of economic activity. It is a dynamic field because of the change and development of newly produced medical technologies, new health insurers and development of various policy initiatives.

Economic concepts and tools are used in health care to regulate the ease and access of healthcare to the society. Economic tools are essential in governing the quality of healthcare provided to the general population. Various stakeholders as well as the government are responsible for controlling and managing health care systems; this ensures that even the poorest and unfortunate citizens enjoy these public services and in this way, they are able to improve the economy as they are in good health. Healthcare involves use of microeconomic tools like demand and supply, different elasticity and marginal costs. These tools of health economics can be applied in a wide range of problems and shortfalls pertaining to health provision. They also examine economic desirability of a hotly contested merger between big hospitals in the metropolitan.

At times it becomes very difficult for the government to provide these services because of microeconomic factors. In America several proposals have been passed to look into ways of providing quality healthcare to the population at an affordable rate. These reforms are faced with problems such as selection of an appropriately managed healthcare program because most providers are not well managed. The health industry consists of a high number of private providers a situation that has been brought about by the government’s inability to offer quality care. What some countries have been doing nowadays is calling upon the stakeholders in the industry to come up with initiatives that will facilitate provision of quality health services to all citizens.

Demand and Supply in Health Care

Equilibrium in many industries and services occurs when demand and supply equals but this does not occur in health care because demand is never satisfied (Dale, 2004). Patients keep on going for healthcare services and this eventually exhausts these services leaving the patients in need of more. The supply of medical care needs both organic and inorganic resources; inorganic resources in this service includes beds, building, catheters, scalpels, bandages, disposable syringes and professional time, whereas organic resources are organic compounds and organs for transplant, skin tissues , body parts and blood. For the patients to be satisfied both organic and inorganic resources should be available.

Treatment for different patient’s needs unique organic and inorganic resources from the supply pool thus incase one of the indispensible item from the supply pool lacks, the patient’s needs cannot be met. These resources diminish quickly and this leaves some patient out without being treated because unlimited demand exceeds limited supply. This situation affects the economic growth of a nation when the population lacks medical services and it can lead to increase in mortality level.

The Marginal Analysis

Another tool used to evaluate the current situation in today’s healthcare industry is the marginal analysis. Marginal analysis is described as the procedure of recognizing the benefits and costs of diverse options by examining the incremental effects on total cost caused by a very small change in the output of each alternative. These alternatives involve proper allocation of resources used in medical services to health centers that have the highest need to that with the lowest need (Jacobs, 1997). It also involves allocation of quality and quantity resources that can perform effectively to avoid misuse in order to save on costs. Proper medical mix of goods and services is also essential such as employment of professionals who are well qualified and are multiple talented to avoid many professionals who have only one area of skills. This helps in cutting costs arising from the remuneration of many employees. The resources are then utilized in provision of quality medical care.

Elasticity as a Tool of Evaluation

Elasticity as a tool of evaluation provides a way of measuring how sensitive demand and supply is to factors like change in marginal price. Elasticity of price can be used by economists to forecast the effects that will be experienced in case there is change in price in different markets. Health economists use elasticity to predict how demand and supply will affect provision of services in healthcare industry. Cost sharing is the term that medical economies use to describe direct charging; demand can be reduced by increasing direct charging, a move many consider as an attempt of raising revenue. Demand for prescription is becoming more price elastic as time goes by, while rise in prescription charges can raise less revenue but lead to greater decrease in use of prescribed medicines.

Economic Tools and Concepts of Health Economics

Health care is a valuable good in the society because it is largely provided for free at the point of delivery, this is true because the price mechanism cannot work to ration scarce resources as it would for those goods that are provided as private goods. In case there is no price mechanism it means that there will be a shortage, given that the demand will increase to its maximum (United States, 1980). This means that the healthcare resources must be rationed through some other systems like waiting list. This explains why healthcare services are offered at different prices. In a short run the supply is fixed in a healthcare hence the supply curve is imperfect inelastic.

Health economics is mostly concerned with the determination and allotment of health resources, and distribution of medical services in today’s society where resources are scare and wants are limitless. The society should be in a position to determine those who are to receive output of health care services, what kind of medical services to provide and the quantity to produce. Economic tools and concepts of health economics should be used to explore more how the sector should be operated and the factors affecting its performance. These tools can also be used to find answers and offer public policy prescriptions which involve structure and conduct remedies. Healthcare prices are not necessarily determined by supply and demand because most healthcare suppliers like the hospital are government institutions that are non-profit making institutions. In most cases the amount demanded is not substantially proportional to changes in price.

 Like other markets that are affected by supply and demand, healthcare institutions are also affected. When the price increases the demand for healthcare services decreases, though this differs in cases where the patients have a medical cover. A patient with a medical cover or insurance may pay a much lower price than the actual cost involved in the provision of such medical care. Pressure from the public has pushed governments to come up with policies aimed at lowering the cost of quality healthcare. Unfortunately, the cost of treatment has continued to increase despite government subsidies on medical services and medicine. More policies need to be developed to cater for good health for all regardless of social status.

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