BHA FPX 4112 Assessment 1 Instructions: Health Production Function Example The Supply and Demand of Health Care

Demand and Supply for Healthcare Services Compared to Automobiles

Demand refers to the consumers’ desire to purchase goods and services alongside their willingness to pay the price for specific goods or services. On the other hand, supply entails the number of goods or services available to customers at a given price when other factors are constant. When discussing demand and supply for a particular good or service, it is essential to consider price/cost as the primary factor influencing an individual’s purchase power.

However, it is fundamental to approach the demand and supply for healthcare as uniquely different from other consumer entities like automobiles due to various distinctive features. According to Folland, Goodman & Stano (2017), demand and supply for healthcare services are partially consistent with the normal economic principles due to the presence of uncertainties, prominence of insurance, the problem of information, restrictions on competition, government subsidies, and public provisions, and the ever-expanding roles of non-profit firms.

Factors Influencing the Demand for Healthcare Services and Automobiles.

Price and income

As noted earlier, the demand for healthcare services often circumvents the standard principles of economics. In this sense, factors influencing consumers’ willingness to pay for services extend beyond the service price. Folland, Goodman & Stano (2017) contend that healthcare differs from other goods because consumers do not respond to financial incentives (p. 42).

However, price matters when it comes to accessibility to healthcare services because people are willing to access more services when they become less costly in terms of out-of-pocket expenses. At this point, government incentives and insurance premiums significantly lower out-of-pocket costs, increasing demand for quality care services.

When considering how prices influence demand for healthcare services, it is clear that similar trends manifest in the automobile industry since the demand for care increases with decreased price and vice versa. In this, the inverse relationship between price and demand is consistent in almost all consumer goods, including healthcare services and automobiles.

Another similarity between healthcare services and automobiles is the role of personal income in determining individual purchase power. When income increases, customers are more willing and able to pay for healthcare services and insurance premiums. Similarly, increased income translates to higher demand for the expensive automobile if other factors are constant.

Complements and Substitutes

Complements are related goods or services whose changes influence the demand for complementary goods or services (Ghorban, 2021). Consumers’ access to various complementary services is common in healthcare because they guarantee care coordination and quality. For example, the demand for contact lenses may influence the number of optometrist visits at a given time.

It is essential to consider the demand for complementary goods such as fuel and spare parts before settling on a specific automotive model in the automobile industry. To sum up the synergies between complementary goods and services, it is possible to argue that an increase in price for a good or service translates to decreased demand for its complement in a perfect market.

Similarly, the availability of substitute goods and services determines the demand for healthcare services and automobiles. In this sense, a substitute is a good or a service that offers similar characteristics and satisfy the same wants. Substitutes include generic drugs and service providers providing similar services in the healthcare sector. In the automobile industry, substitutes may be competing for car models that claim market share by providing many sought-after features.

According to Ghorban (2021), people are willing to demand a substitute product if it proves more effective than its alternatives. As a result, an increase in price for a product or service will prompt customers to favor alternatives, increasing their demand. The inverse relationship between the price of one product or service and the subsequent demand for its alternative (s) applies to healthcare and automobiles.

Individual preferences

Individual perceptions of quality significantly influence demand for healthcare services and automobiles. When purchasing a car, it is possible to evaluate quality measures such as fuel consumption, technology, energy efficiency, and safety factors. In this sense, such factors influence individual willingness to pay fo