Medical Costs

Medical Costs and the Impact on Us

Professor Robert Hudson from the London School of Economics define the indifference curve as a graph showing different bundles of goods between which a consumer is indifferent. That is, at each point on the curve, the consumer has no preference for one bundle over another. One can equivalently refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. Utility is then a device to represent preferences rather than something from which preferences come. The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles. There are infinitely many indifference
Research has shown that not only was the gap between the price of all goods (that includes medical expenses) and medical expenses high in the recent years but that the gap has been growing. In this sense the relative costs of medical care have been rising. ‘Health care spending has risen about 2.4% points faster than GDP since 1970’-according to the Kaiser Family Foundation. The causes of this rise can be traced to many policy reasons that include-increasing role of third party insurers which pay the bills, and the increasing role and scope of government intervention in policy and finances of health care. Experts point out that the main problem is that the final user does not pay the cost anymore and this distorts the market and pricing mechanism of health care. Also, the demographic status of USA is such that the older people are rising in numbers, and they need more care-which raises medical care for the economy. Thus, a combination of wrong policies, and demographic factors, along with the current recession conditions have lead to a galloping of medical care bills for the entire economy. The share of medical care costs in GDP is rising
This has major consequences for our overall economic health. To see how let us take the standard economic analysis that the economists undertake: one using indifference curves and budget lines. Everyone tries to maximize his or her benefit given the constraints they face. People want to consume everything, but they cannot, given their incomes, and hence they have to make choices. This gives rise to what are called convex indifference curves: people are assumed to be indifferent between consuming any two bundles on the line. The want to consume more of every good, hence the further the curve moves out the better it is for consumers. But, they can only go as far as their budget allows, and hence economists assume that people will go to the farthest curve reachable using their income. When medical services become costly the consumer will have to cut down on spending on other goods, since he does not have enough money to buy the same amount of medical and other goods. Since medical services are essential he cannot say he will take less medication, and therefore is left with no choice but to reduce consumption of other