Economic Tools and Concepts

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 & Calibers, 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 (Glenn, 2007). The graph in fugue 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. [pick] Figure 1 All products will follow this trend but to a different degree depending on the importance of price on demand.

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Physician demand is generally less sensitive to price because healthcare is highly valued and consumers have a much higher price Lorraine 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. [pick] 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, emend begins to increase along with the price of that service. The law of supply and demand states that the supply and demand will eventually reach equilibrium where the supply will perfectly match the demand (Glenn, 2007). In other words, if 3 people want the same Sony plasma TV, and Sony has 3 of those TV’s available, the supply and demand for that product is said to be in equilibrium.

The equilibrium point is shown in the green dot in fugue 3. The law of supply and demand also states that the price is what drives the supply and demand and will always shift to the price t the equilibrium point between supply and demand (Glenn, 2007). The market price will always trend toward $500 in fugue 3. [pick] Figure 3 The reason the price will eventually shift back to $500 is because the market will By reporter’s increased from 3 to 4, the supply would shift from 3 to 2 in this example.

In this case, the law of supply and demand would states that Sony would take advantage of the increased demand by raising the price of the TV. When the price of the TV is increased, the consumers demand will drop back to the equilibrium point of 3 and price to $500. If the demand for this TV remained at 4, then a new price equilibrium would be set. Instead of $500 per TV, Sony could sell 4 TV’s at a price of $700. The green equilibrium point in Figure 4 shows the optimum price for the demand if it remained at a quantity of 4. pick] Figure 4 Applying this principle to the physician shortage is not as straightforward because of the inelastic of the demand for healthcare. When prices for TV’s increase, consumers are more willing to decrease their demand because it is not as important as healthcare in relative terms. Because the demand for healthcare continues to increase, the only other solution is to increase supply. In some other markets, the supplier would Just continue to increase the price until the demand reached the equilibrium of the current supply.

This option would not work well in healthcare because pricing a healthcare consumer out of the market would likely result in increased death. Forecasting Physician Shortages Unfortunately, increasing supply of physicians to meet the demand is not forecasted to be very successful if all remains the same as today. The supply and demand lines in Figure 5 show the trend over the next 15 years. If all remains the amen, the demand for physicians will continue to outpace the supply through the year 2025 (Dill & Calibers, 2008).

The supply and demand numbers in the Figure 5 are projections from a study by the Centers for Workforce Studies in 2008. [pick] Figure 5 References Dill, M. , & Calibers, E. (2008). The complexities of physician supply and demand: Projections through 2025. Retrieved from Association of American Medical Colleges: http://services. Mac. Org/publications/showoffs. CFML? Fell=¦orison 22. PDF Glenn, T. (2007). Health economics and financing (3 deed. ). Hoboken, NJ: John Wiley & Sons.