Economic Tools and Concepts

Pages: 3 (826 words) Published: July 4, 2010
Economic Tools and Concepts
The shortage of physician in the Unites States is a concern today and will likely continue to be a concern for American healthcare into the future. Some of the reasons sited for physician shortages include population growth, aging patients, and physician retirement (Dill & Salsberg, 2008). The economic concepts of supply and demand, price elasticity, and marginal analysis can help explain this trend and project the possible changes to physician supply in the future. The Demand Curve

The demand curve is a tool to graphically represent the effect of price on quantity demanded and vice versa. The classic demand curve slopes downwards, which represents an increased demand as price decreases (Gelzen, 2007). The graph in figure 1 demonstrates a typical demand curve representing the classical demand curve trend. When the price is set at $1,100, the demand for that product is four units. When the price is lowered to $200, the demand increases to 13 units. [pic] Figure 1

All products will follow this trend but to a different degree depending on the importance of price on demand. Physician demand is generally less sensitive to price because healthcare is highly valued and consumers have a much higher price tolerance than for other products. This introduces the concept of price elasticity.

The graph in figure 2 is a more accurate representation of the demand curve for healthcare. The graph shows a much steeper curve, which demonstrates the fact that an increase in price only slightly affects the demand for those services.

[pic] Figure 2

Supply and Demand
To graphically demonstrate the physician shortage, the supply measurement needs to be applied to the demand curve. Figure 3 shows the dynamics of a classic supply and demand relationship. This model shows that as supply decreases, demand begins to increase along with the price of that service. The law of supply and demand states that the supply and demand...

References: Dill, M., & Salsberg, E. (2008). The complexities of physician supply and demand: Projections through 2025. Retrieved from Association of American Medical Colleges:
Gelzen, T. (2007). Health economics and financing (3 ed.). Hobeken, NJ: John Wiley & Sons.
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