Health Economics

I have included what this discussion needs to be done over as well as the condition I would like it to be done over. Please follow theinstructions carefully.

Background
In an efficiently working market, the market equilibrium price and quantity (found where supply equals demand) accurately show the value that society places on the good and the quantity society wants produced. If the market is efficient, we would not be better off shifting our resources (like labor) to produce something different.

Assignment
On Module 2 (part 2)’s Course Material page, I described five conditions that are necessary for a market (supply & demand) to work efficiently, but which are violated in the market for health care. Choose one of those conditions, and write a short answer (one paragraph) about that market failure for each of the following two questions:

(1.5 points) In your own words, describe the condition of perfect competition that you chose, and why it matters for supply and/or demand to be accurate; and,

(1.5 points) Discuss how the violation of that condition could create problems when trying to buy, or sell, health care.

Note: The condition of perfect competition may be relevant for only demand, only supply, or it may be relevant to both.

Consumer Sovereignty

Consumer sovereignty is the idea that each person decides what to buy, and how much to pay for it. If the price is more than it is worth to them, then they will not buy it. Consumer sovereignty and perfect information are linked–you cannot decide what to buy in an information vacuum. The important point of consumer sovereignty is that, even though you may get information from various sources including your doctor (supplier), your decision of what to buy does not hinge on the self-interested choice of a supplier.

For most goods and services, there is consumer sovereignty. You can decide which of the cars that you can afford, would best fit your needs and preferences. After researching online, maybe you would bring your mom or dad along to dealers for advice, so they would be one of the sources of information you use, but you would make the decision. What you probably would not do, is ask the used car salesman to decide for you.

In health care, however, that is exactly what we do. The doctor decides what we will buy from them. The patient can refuse care, but if feeling unwell, many will follow their doctor’s advice because they want to feel better. So, ultimately, in health care it is the supplier (a doctor) determining demand for their own services.

That is only half of the problem for the lack of consumer sovereignty in health care. After the doctor has determined what health care their patient will “demand” (use), who pays for it? Who determines willingness and ability to pay? Is it the patient? No, typically not. In the U.S.A. the patient will generally pay something, but the bulk of the bill will be paid by insurance. So the supplier (doctor) determines what care the patient demands, and the insurer determines the value of that care (how much will be paid). Thus, health care is very far removed from the usual framework of supply and demand.

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