Week 1
The demand and supply functions for health care intersect with one another to establish market
equilibrium
Productive resources are allocated to highly valued and specialized uses and therefore encourage efficiency. Competition takes production out of the hands of the less competitive and places it into the hands of the more efficient—constantly promoting the efficient methods of production. This causes firms to develop new, similar products cheaply, improving the selection of products available to consumers.
Competition
The contribution that an activity makes to society’s welfare.
Social Benefit
A model of the demand for health, developed in the 1970s by Michael Grossman, treats investment in health as a form of investment in
human capital
Addresses the problem of limited resources and the need to make choices given unlimited human wants.
scarcity
Arises when the free market fails to promote efficient allocation of goods and services. Sources of “failures”—of the free market—include natural monopoly, oligopoly, externalities of production or consumption, public goods, and incomplete information.
Market Failure
The contribution that an activity makes to society’s welfare.
Antitrust
is a term that refers to the extent to which people discount the future.
time preference
In microeconomics, given limited resources, choices must be made among mutually exclusive alternatives. The cost associated with the choice is the value of the foregone alternative. This valuation is a crucial component of determining and ensuring efficiency in the market. For example, the opportunity cost of purchasing this text is the money that could have been spent on leisure pursuits instead.
Opportunity costs
the additional benefit received from consuming the next unit of the good or service
Marginal Benefit
Federal legislation whose primary function is to provide continuity of healthcare coverage; it also imposed protection of patient privacy.
HIPAA
A higher indifference curve represents a higher level of total utility. The standard assumption is that both the consumption good and health are subject to
diminishing marginal utility
Recognizes that choices are made incrementally. In this environment, optimal decision making is based on the incremental benefits and the costs of an alternative, where, in equilibrium, the incremental benefits equal the incremental costs of the alternative.
Marginal Anaylsis
he additional cost of consuming the next unit of a good or service
Marginal cost
is good that is used in companion to the good in question;
complementary good
measure of how much extra output can be produced with an extra unit of capital input.
marginal efficiency of capital
Serves as the foundation of price determination in microeconomic analysis. In equilibrium, price converges where the quantity demanded by the consumer equals the quantity supplied by the producer.
Supply and Demand
is a process that firms use to determine the most output given price levels that will yield the most return after production costs and the total cost outlay are taken into account.
profit maximization
is a good that is used instead of the good in question. If the coefficient of cross-price elasticity of demand for a good is positive and large enough in magnitude to be of some consequence, the firm likely has effective monopoly power.
substitute good
Each indifference curve shows the various combinations of health and consumption goods that provide an individual with an equal amount of satisfaction or utility.
indifference curve