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 change in cost resulting from a change in output by one unit. Because fixed costs do not change with output, marginal cost is related to variable cost only.
marginal cost
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
Measures how well resources are being used to maximize the production of goods and services. Economic efficiency occurs if nothing more can be achieved given limited resources.
Efficiency
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 term that refers to the extent to which people discount the future. The person who is preoccupied with the present ignores the future—that is, discounts it very heavily. Such a person is not likely to save or invest much in either education or health
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
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
is when a consumer strives to get the greatest satisfaction or value from the bundle purchased using the least amount of budgeted money.
Utility Maximization
is a measure of how much extra output can be produced with an extra unit of capital input.
marginal efficiency of capital
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 Analysis
Analysis and examines how changes in market conditions influence the positions of the demand and supply curves and cause the equilibrium price and quantity to change.
Comparative Statics
To maximize utility or satisfaction, each person consumes goods or services to the point that ________equals the price of the good or service in question
marginal private benefit
is a good for which income elasticity is positive but less than 1
normal good
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
the area below price but above the supply curve
producer surplus
The profit-maximizing firm will produce up to the point where ______equals price of the good or service
marginal private cost
If the percentage increase in the quantity consumed is greater than the associated percentage increase in income, the good is called
superior good